High-Ratio Loan

Loan-to-Value (LTV) Ratio

The loan-to-value (LTV) ratio compares the amount of a mortgage to the appraised value of the property. Lenders use LTV to assess risk: higher LTVs indicate less borrower equity and greater lender exposure, which often leads to higher interest rates or insurance requirements.

How LTV Works

• LTV is a key part of mortgage underwriting for purchases, refinances, and home-equity loans.
• Loans with high LTVs are viewed as higher risk because there’s little equity to absorb price declines or cover the loan in a foreclosure sale.
• Many lenders set favorable rates and terms for borrowers with LTVs at or below 80%.

How to Calculate LTV

LTV = (Mortgage amount ÷ Appraised property value) × 100%

Example:
– Appraised value: $100,000
– Down payment: $10,000 → Mortgage amount = $90,000
– LTV = ($90,000 ÷ $100,000) × 100% = 90%

A larger down payment lowers the LTV.

Why LTV Matters to Lenders and Borrowers

• Interest rate: Lower LTVs typically secure lower interest rates.
• Mortgage insurance: Loans with LTVs above ~80% commonly require private mortgage insurance (PMI) for conventional loans, which can add roughly 0.5%–1% of the loan balance annually.
• Approval odds: Very high LTVs (e.g., above 95%) may make approval harder or more expensive.

Typical Thresholds and Rules

• 80%: Common threshold for avoiding PMI and getting the best conventional rates.
• Above 80%: Expect higher rates and/or mortgage insurance.
• Above 95%: Often considered high risk or unacceptable for some lenders.

Variations by Loan Type

• FHA loans: Allow LTV up to 96.5% with mortgage insurance premiums (MIP) that may last the life of the loan unless refinanced.
• VA and USDA loans: May allow up to 100% LTV without PMI, but have other program fees or funding charges.
• Fannie Mae / Freddie Mac programs: HomeReady and Home Possible can allow up to 97% LTV; mortgage insurance is required until LTV falls to 80%.

Combined Loan-to-Value (CLTV)

CLTV = (Total of all loans secured by the property ÷ Property value) × 100%

CLTV includes the primary mortgage plus second mortgages, home-equity loans, or HELOCs. Example:
– Primary mortgage: $100,000
– Second mortgage: $30,000
– HELOC: $20,000
– Property value: $200,000
– CLTV = ($100,000 + $30,000 + $20,000) ÷ $200,000 = 75%

Lenders review CLTV to evaluate total secured exposure on the property.

Quick FAQs

• What is a good LTV? Generally 80% or lower is preferred.
• What does 70% LTV mean? The loan equals 70% of the property value; the borrower has 30% equity.
• What’s a disadvantage of LTV? LTV considers only the primary loan; CLTV is more complete because it includes additional liens.

Bottom Line

LTV measures how much of a property’s value is financed. Lower LTVs reduce lender risk and usually improve borrower pricing and access to better loan terms. Borrowers who can increase their down payment or reduce outstanding liens will lower LTV/CLTV and improve mortgage options.