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Loan-to-Value Ratio (LTV)
Down Payment Percentage
Risk Assessment
Calculation Principles & Formulas
The Loan-to-Value (LTV) ratio is a risk assessment ratio used by financial institutions and other lenders to examine the risk of a mortgage loan. A lower LTV means less risk for the lender and often better rates for the borrower.
[Formula]
LTV = (Loan Amount / Appraised Property Value) × 100%
[Example]
If you buy a home appraised at $500,000 with a $100,000 down payment, borrowing $400,000:
LTV = (400,000 / 500,000) × 100% = 80%
Note: Typically, if the LTV exceeds 80%, lenders require the borrower to purchase Private Mortgage Insurance (PMI) until the LTV drops below 80%.
