What loan-to-value means
Loan-to-value, or LTV, is the size of your loan compared with the value of the property securing it. A lower LTV means you own more of the home outright, which lenders see as less risky, so it usually earns you a better interest rate and can remove the need for mortgage insurance.
The LTV formula
LTV = (loan amount / property value) x 100. Your equity is simply the property value minus the loan.
Worked example
Borrow 240,000 against a 300,000 home and your LTV is 240,000 / 300,000 x 100, which is 80%. Your equity is 60,000. Eighty percent is a common target because it is where many lenders stop charging private mortgage insurance.
Why 80% matters
At or below 80% LTV you typically avoid PMI and unlock better rates. Above 90% is seen as higher risk and costs more. Putting down a larger deposit, or a rise in the property's value over time, both push your LTV down.
Frequently asked questions
What is a good loan-to-value ratio?
80% or below is the usual sweet spot: it typically avoids private mortgage insurance and earns better rates. Above 90% is considered higher risk.
How is LTV different from a down payment?
They are two sides of the same coin. A 20% down payment leaves an 80% loan, so an 80% LTV. LTV expresses the loan as a share of the property's value.
Does LTV affect my interest rate?
Yes. A lower LTV means less risk for the lender, which usually translates into a lower rate and better loan terms.
Can my LTV change over time?
Yes. As you pay down the loan or the property rises in value, your LTV falls, which can let you drop mortgage insurance or refinance to a better rate.