LTV Formula:
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The Loan-to-Value (LTV) ratio is a financial term used by lenders to express the ratio of a loan to the value of an asset purchased. It's commonly used in mortgage lending to assess the risk of a loan.
The calculator uses the LTV formula:
Where:
Explanation: The LTV ratio represents what percentage of the property's value is being financed by the loan.
Details: LTV is crucial for lenders to determine loan risk and for borrowers to understand how much equity they'll have in the property. Lower LTV ratios typically result in better loan terms.
Tips: Enter the loan amount and property value in dollars. Both values must be positive numbers.
Q1: What is a good LTV ratio?
A: Typically, 80% or lower is considered good as it often avoids private mortgage insurance (PMI) and gets better interest rates.
Q2: How does LTV affect mortgage approval?
A: Higher LTV ratios (above 80%) may require PMI and can make loan approval more difficult or result in higher interest rates.
Q3: Can LTV be more than 100%?
A: Yes, if the loan amount exceeds the property value, but this is uncommon in standard mortgages and indicates negative equity.
Q4: How can I lower my LTV ratio?
A: By making a larger down payment, choosing a less expensive property, or waiting for property values to increase.
Q5: Is LTV the same as combined LTV (CLTV)?
A: No, CLTV includes all liens on the property (like second mortgages), while LTV only considers the primary mortgage.