1. What is Loan To Value (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. It's commonly used in mortgage lending to assess the risk of a loan.

2. How Does the Calculator Work?

The calculator uses the LTV formula:

Where:

• \( \text{Loan Amount} \) — The amount of money borrowed
• \( \text{Property Value} \) — The appraised value of the property

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

3. Importance of LTV Calculation

Details: LTV is a key metric lenders use to evaluate risk. Lower LTV ratios generally mean better loan terms and interest rates, as they represent less risk to the lender.

4. Using the Calculator

Tips: Enter the loan amount and property value in dollars. Both values must be positive numbers. The calculator will compute the LTV percentage.

5. Frequently Asked Questions (FAQ)

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

Q2: How does LTV affect mortgage rates?
A: Generally, lower LTV ratios qualify for better interest rates as they represent less risk to the lender.

Q3: Can LTV be more than 100%?
A: Yes, this occurs when the loan amount exceeds the property value, known as being "underwater" on the mortgage.

Q4: How is LTV used in refinancing?
A: LTV is crucial in refinancing as it helps determine if you qualify and what terms you'll receive.

Q5: Does LTV include closing costs?
A: Standard LTV calculations use just the loan amount and property value. However, some loans may include closing costs in the calculation.