1. What is Loan To Value Ratio?

Loan To Value Ratio is a financial metric representing the proportion of a loan amount compared to the appraised value of the asset used as collateral, expressed as a percentage.

2. How Does the Calculator Work?

The calculator uses the Loan To Value Ratio formula:

Where:

• \( MA \) — Mortgage Amount ($)
• \( APV \) — Appraised Property Value ($)

Explanation: The equation calculates the percentage of the property value that is being financed through the mortgage loan.

3. Importance of LTV Calculation

Details: LTV ratio is crucial for lenders to assess risk and for borrowers to understand their equity position. Lower LTV ratios typically result in better loan terms and interest rates.

4. Using the Calculator

Tips: Enter mortgage amount and appraised property value in dollars. Both values must be positive numbers greater than zero.

5. Frequently Asked Questions (FAQ)

Q1: What is a good LTV ratio?
A: Generally, an LTV ratio of 80% or lower is considered good, as it often allows borrowers to avoid private mortgage insurance (PMI).

Q2: How does LTV affect mortgage approval?
A: Higher LTV ratios indicate higher risk for lenders, which may result in higher interest rates or difficulty in loan approval.

Q3: Can LTV ratio change over time?
A: Yes, as you pay down your mortgage principal and/or if the property value changes, your LTV ratio will change accordingly.

Q4: What's the maximum LTV ratio typically allowed?
A: Conventional loans typically allow up to 80-97% LTV, while FHA loans may allow up to 96.5% LTV with mortgage insurance.

Q5: How is LTV different from CLTV?
A: LTV considers only the first mortgage, while Combined Loan-to-Value (CLTV) includes all liens on the property (first mortgage, second mortgage, HELOC, etc.).