1. What is Loan-to-Value Ratio (LTV)?

The Loan-to-Value (LTV) ratio is a financial term used by lenders to express the ratio of a loan to the value of an asset purchased. A 95% LTV means the borrower is financing 95% of the property's value and providing a 5% down payment.

2. How Does the Calculator Work?

The calculator uses the LTV formula:

Where:

• \( Loan \) — The mortgage loan amount
• \( Property\ Value \) — The appraised value of the property

Explanation: The equation calculates what percentage of the property value is being financed by the loan.

3. Importance of LTV Calculation

Details: LTV is crucial for mortgage approval, interest rate determination, and whether private mortgage insurance (PMI) is required. Lower LTV ratios generally mean better loan terms.

4. Using the Calculator

Tips: Enter the loan amount and property value in dollars. Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: Why is 95% LTV significant?
A: 95% LTV represents a high loan-to-value ratio, typically requiring PMI and often resulting in higher interest rates.

Q2: What are typical LTV requirements?
A: Conventional loans often require ≤80% LTV to avoid PMI. FHA loans may allow up to 96.5% LTV.

Q3: How does LTV affect interest rates?
A: Generally, higher LTV ratios result in higher interest rates as they represent greater risk to lenders.

Q4: Can LTV change over time?
A: Yes, as you pay down principal and/or property values change, your LTV ratio will change.

Q5: What's combined LTV (CLTV)?
A: CLTV includes all liens on a property (like first and second mortgages) in the calculation.