What Is Loan-to-Value Ratio (LTV)?
February 18, 2026
When you apply for a mortgage, one of the first numbers your lender calculates is your loan-to-value ratio. It's a simple ratio, but it has an outsized influence on whether you get approved, what interest rate you're offered, and whether you'll have to pay PMI.
Loan-to-value ratio (LTV) is the percentage of a property's value that you're financing with a mortgage. The lower your LTV, the less risky you are to a lender, and the better your loan terms will be.
Table of Contents
- How to Calculate LTV
- Why Lenders Care About LTV
- How LTV Affects Your Mortgage
- Combined LTV (CLTV)
- LTV and Refinancing
- How to Lower Your LTV
- What LTV Should You Aim For?
- Know Your Number
How to Calculate LTV
Loan-to-Value Calculator
The formula is straightforward:
LTV = (Loan Amount / Property Value) x 100
For a purchase, the property value is the lower of the purchase price or the appraised value. For a refinance, it's the current appraised value.
Some examples:
| Home Value | Down Payment | Loan Amount | LTV |
|---|---|---|---|
| $400,000 | $80,000 (20%) | $320,000 | 80% |
| $400,000 | $40,000 (10%) | $360,000 | 90% |
| $400,000 | $20,000 (5%) | $380,000 | 95% |
| $400,000 | $14,000 (3.5%) | $386,000 | 96.5% |
That last row is what you'd see with a minimum-down-payment FHA loan.
Notice how the math works in reverse too: your down payment percentage and LTV always add up to 100%. Put 20% down and your LTV is 80%. Put 5% down and your LTV is 95%.
Why Lenders Care About LTV
From a lender's perspective, LTV measures how much skin you have in the game. The more of your own money you've put into the property, the less likely you are to walk away from the mortgage if things get tough.
Here's the risk equation: if a borrower with a 95% LTV defaults and the lender has to sell the home, the property only needs to lose 5% of its value for the lender to take a loss. But if the borrower has an 80% LTV, the property would need to lose 20% before the lender loses money.
That's why a lower LTV gets you better terms across the board.
How LTV Affects Your Mortgage
Interest Rates
Borrowers with lower LTVs typically qualify for lower interest rates. The difference isn't dramatic, but it's real. A borrower at 80% LTV might get a rate 0.125% to 0.25% lower than someone at 95% LTV, all else being equal.
Over 30 years on a $320,000 loan, even a 0.125% rate difference adds up to roughly $8,000 in extra interest. That's one reason putting a larger down payment down can save you money beyond just reducing the loan amount.
PMI Requirements
This is where LTV has its most visible impact. On a conventional loan:
- LTV of 80% or below: No PMI required
- LTV above 80%: PMI required until you reach 80% LTV (by request) or 78% LTV (automatic cancellation)
PMI typically costs 0.5% to 1.5% of the loan amount per year. On a $360,000 loan (90% LTV), that's $150 to $450 per month. Getting your LTV to 80% eliminates this cost entirely.
Loan Program Eligibility
Different loan programs have different maximum LTV limits:
| Loan Type | Maximum LTV | Minimum Down Payment |
|---|---|---|
| Conventional | 97% | 3% |
| FHA | 96.5% | 3.5% |
| VA | 100% | 0% |
| USDA | 100% | 0% |
| Jumbo | 80-90% | 10-20% |
VA and USDA loans allow 100% LTV (no down payment), but they have other eligibility requirements. Jumbo loans generally require a lower LTV because the loan amounts are larger and the risk is higher.
Combined LTV (CLTV)
If you have more than one loan on a property (like a home equity loan or line of credit in addition to your first mortgage), lenders look at your combined LTV.
CLTV = (All Loan Balances / Property Value) x 100
For example, if your home is worth $400,000 and you have a $280,000 first mortgage plus a $40,000 home equity line of credit, your CLTV is 80%.
CLTV matters when you're applying for a second mortgage or home equity product. Most lenders cap CLTV at 80% to 90%, meaning you need to maintain at least 10% to 20% equity even with multiple loans.
LTV and Refinancing
When you refinance, your LTV is recalculated based on your current loan balance and the home's current appraised value. This is where home appreciation can work in your favor.
Say you bought a $400,000 home with 10% down ($360,000 loan, 90% LTV). After a few years, you've paid the balance down to $345,000, and the home has appreciated to $440,000. Your new LTV would be:
$345,000 / $440,000 = 78.4% LTV
That's below 80%, which means you could refinance without PMI, even though you originally put only 10% down. Home appreciation essentially gave you the equity you didn't have at purchase.
On the other hand, if home values decline, your LTV goes up. Borrowers who bought near a market peak sometimes find themselves "underwater," owing more than the home is worth (LTV above 100%). This makes refinancing extremely difficult.
How to Lower Your LTV
There are three ways your LTV decreases over time:
1. Making mortgage payments. Every monthly payment reduces your loan balance through amortization. Early on, the balance drops slowly because most of your payment goes to interest. But it accelerates over time.
2. Making extra principal payments. Adding extra money to your monthly payment (directed toward principal) reduces your balance faster. Even an extra $100 or $200 a month can help you reach 80% LTV significantly sooner.
3. Home appreciation. As your property value increases, your LTV drops even without extra payments. In markets with strong appreciation, this can be the fastest path to a better LTV.
What LTV Should You Aim For?
The magic number most people focus on is 80% LTV because that's when PMI goes away. But beyond that threshold, here's how to think about it:
If 80% LTV feels achievable, stretch for it. Eliminating PMI from day one saves hundreds per month and lowers your effective interest cost.
If 80% is out of reach, don't let that stop you from buying. Putting 10% or even 5% down with PMI might be the smarter financial move compared to waiting years to save more, especially in a market where home prices are rising. You can always work toward removing PMI through payments or appreciation.
If you're refinancing, aim for 80% or below to avoid PMI and qualify for the best rates. If your home has appreciated, you might already be there.
Know Your Number
LTV is one of the most important numbers in your mortgage. It determines whether you pay PMI, influences your interest rate, and affects which loan programs you qualify for.
The formula is simple: divide your loan amount by the property value. The lower the result, the better your terms. If you're buying a home, put down as much as you comfortably can without draining your savings. If you're already a homeowner, track your LTV as you make payments and as your home appreciates, because crossing below 80% can save you real money every month.