LTV Ratio Calculator
Your Calculated LTV Ratio
0%
What is the LTV Ratio?
The Loan-to-Value (LTV) ratio is a critical financial metric used by lenders to assess the risk of a loan. It compares the amount of the loan you are seeking or currently hold against the total appraised value of the asset securing that loan (usually a home or vehicle).
LTV Ratio = (Total Loan Amount / Appraised Value) × 100
How to Calculate LTV Ratio Manually
Calculating your LTV is straightforward. Follow these steps:
- Determine the Loan Amount: This is the total amount you are borrowing or the current balance left on your mortgage.
- Determine the Asset Value: This is the current market value of the property, typically determined by a professional appraisal.
- Divide: Divide the loan amount by the appraised value.
- Convert to Percentage: Multiply the result by 100 to get the percentage.
Example Calculation
Imagine you want to buy a house appraised at $500,000. You have a down payment of $100,000, meaning you need a loan of $400,000.
Calculation: (400,000 / 500,000) = 0.8. Multiply by 100 = 80% LTV.
Why the LTV Ratio Matters
Lenders use LTV to determine if they will approve a loan and what the interest rate will be. Generally:
- Low LTV (80% or less): Seen as lower risk. Borrowers often get better interest rates and avoid Private Mortgage Insurance (PMI).
- High LTV (Over 80%): Seen as higher risk. Borrowers may be required to pay for mortgage insurance to protect the lender in case of default.
- Underwater (Over 100%): This occurs when the loan balance exceeds the value of the property, making it difficult to refinance or sell without a loss.