Loan-to-value ratio (LTV) is the percentage of a property's value that is financed by a mortgage. It is one of the most important factors lenders use to assess risk and determine mortgage terms.
LTV Formula
LTV = (Loan Amount / Property Value) × 100
A $320,000 mortgage on a $400,000 home has an LTV of 80%. The remaining 20% ($80,000) is the borrower's equity — either from the down payment, appreciation, or mortgage paydown over time.
Why LTV Matters
LTV affects three things: your interest rate, whether you need private mortgage insurance (PMI), and how much you can borrow. Higher LTV means higher risk for the lender, which translates to a higher interest rate and, for conventional loans, a PMI requirement if LTV exceeds 80%.
PMI and the 80% LTV Threshold
On conventional loans, LTV above 80% typically triggers PMI (private mortgage insurance), which protects the lender if you default. PMI costs 0.5–1.5% of the loan amount annually, added to your monthly payment. Once your LTV drops below 80% — through payments, appreciation, or a combination — you can request PMI cancellation. It must be automatically terminated at 78% LTV by law (for loans issued after July 1999).
LTV Over Time
As you make mortgage payments, you reduce the principal balance while the property (ideally) appreciates, both of which decrease LTV. The Mortgage Calculator shows your loan balance at any point during the loan term, which you can divide by your property's current value to track your LTV progress.