What Is Loan-to-Value (LTV) and Why It Matters

Loan-to-value, or LTV, compares how much you are borrowing to what the asset is worth. Lenders treat it as a core measure of risk: the more equity you have, the less they stand to lose, so a lower LTV usually earns you a better interest rate and easier approval.

How LTV is calculated

Divide the loan amount by the appraised value of the property, then multiply by 100. On a $300,000 home with a $240,000 mortgage, the LTV is 80%. Put another way, a 20% down payment leaves you at 80% LTV on day one.

The thresholds that matter

• 80% or below — the sweet spot; you typically avoid PMI and qualify for the best conventional rates.
• 80% to 95% — still financeable, but expect private mortgage insurance and a slightly higher rate.
• Above 95% — options narrow to low-down-payment or government-backed programs.

Why LTV follows you after closing

LTV is not just a purchase number. It decides when PMI can be removed (usually once you reach 80% LTV), whether you can refinance, and how much you can pull out with a home-equity loan or HELOC. As you pay down the balance and the home appreciates, your LTV falls — which is why refinancing often makes sense a few years in.

Work out your own ratio and see how it affects PMI and your payment with the calculators below.