Understanding Loan-to-Value (LTV)

When it comes to getting a mortgage, refinancing, or tapping into your home equity, one of the most important numbers lenders consider is your Loan-to-Value (LTV) ratio. But what exactly is LTV, and why does it matter? Let’s break it down.

What Is Loan-to-Value (LTV)?

LTV is a simple calculation that compares the size of your loan to the appraised value of your home. It helps lenders assess risk when approving mortgages and other home loans. A lower LTV means you have more equity in the home, making you a less risky borrower. A higher LTV, on the other hand, may result in additional costs to mitigate the higher risk for the lender, such as a higher interest rate or the requirement to purchase private mortgage insurance (PMI).

How to Calculate LTV

LTV is calculated using this formula: LTV = (Loan Amount / Home Value) x 100

For example:  if you're borrowing $150,000 to purchase a home valued at $200,000
Your LTV is: 150,000/200,000 x 100 = 75%

Generally, an LTV of 80% or lower is ideal, as it may secure better loan terms, such as a lower interest rate and no PMI requirement.

Why LTV Matters

Lenders use LTV to determine how much risk they’re taking on when they lend you money. The higher your LTV, the more risk they assume, which can impact your mortgage terms in several ways:

• Mortgage Approval: If your LTV is too high, you may have trouble qualifying for a loan.
• Interest Rates: Higher LTVs often mean higher interest rates.
• Private Mortgage Insurance (PMI): If your LTV is above 80%, most lenders require PMI, an extra cost that protects the lender if you default.
• Refinancing Eligibility: If you’re refinancing, your LTV will determine if you qualify and what terms you receive.

LTV in Different Loan Scenarios

Here are some common situations where LTV plays a role:

• Buying a Home: LTV determines how much you need for a down payment. A lower LTV often means better loan terms.
• Refinancing: Lenders look at LTV to decide if you have enough equity to refinance your mortgage.
• Home Equity Loans: If you’re borrowing against your home’s equity, your LTV affects how much you can access.

LTV vs. CLTV: What’s the Difference?

LTV considers just your primary mortgage, but Combined Loan-to-Value (CLTV) includes all loans tied to your home, such as a second mortgage or home equity line of credit (HELOC). For example, if you have:

• A $150,000 first mortgage
• A $20,000 second mortgage
• A $10,000 HELOC
• A home valued at $200,000

Your CLTV would be 90% ($180,000 / $200,000 × 100), much higher than the 75% LTV of just your primary mortgage. A higher CLTV could mean stricter loan requirements.

How CapCenter Helps You Navigate LTV

At CapCenter, we simplify the mortgage process and help you understand how LTV impacts your loan options. Our Zero Closing Cost loans mean you can keep more money in your pocket, whether you’re buying a home, refinancing, or leveraging your home’s equity.

Our team is here to guide you through every step—helping you determine the right loan amount, down payment, and mortgage structure that works for your financial goals.

‍Ready to take the next step? Contact us today to explore your options and see how we can help you save!

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