Loan-to-value ratio (LTV) is one of the single most important numbers in mortgage lending. It tells lenders how much of the property's value is financed versus owned outright — and it controls your rate, your PMI obligation, and how much equity you can borrow against.
The LTV Formula
LTV is simply your loan balance divided by the property's appraised value, expressed as a percentage.
LTV = Loan Balance ÷ Appraised Value × 100 Example: $240,000 loan on a $300,000 home → LTV = 240,000 ÷ 300,000 × 100 = 80% At purchase, loan balance = purchase price minus your down payment.
The LTV Thresholds That Matter
- 97% LTV — maximum for most conventional loans with 3% down (Fannie Mae HomeReady, Freddie Mac Home Possible)
- 95% LTV — standard conventional with 5% down; PMI required
- 90% LTV — 10% down; PMI required but at a lower rate
- 80% LTV — the magic number. No PMI required. Best rates.
- 80% LTV (refinance) — standard maximum for rate-and-term refis
- 85% LTV — maximum for most HELOCs and home equity loans
- 75% LTV — maximum for cash-out refis on investment properties
CLTV: Combined Loan-to-Value
When you have a first mortgage and a second lien (HELOC or home equity loan), lenders use CLTV — the sum of all loans against the property divided by its value.
If your home is worth $400,000, your first mortgage balance is $250,000, and you want a $50,000 HELOC, your CLTV is ($250,000 + $50,000) ÷ $400,000 = 75%. Most lenders allow up to 85% CLTV for equity products.
How LTV Affects Your Interest Rate
Lenders use loan-level price adjustments (LLPAs) that raise your rate as LTV increases. The difference between 80% and 95% LTV can be 0.25–0.75% in rate on a conventional loan, which translates to thousands in interest over the life of the loan. This is one reason a larger down payment often earns a meaningfully lower rate — not just by eliminating PMI, but by improving your pricing tier.
How Your LTV Improves Over Time
LTV falls two ways: principal paydown from your monthly payments, and home value appreciation. In a rising market, appreciation can move your LTV faster than paydown alone. Once you hit 80% LTV through a combination of both, you can request PMI cancellation in writing — your servicer must respond within 30 days.
PMI is automatically terminated at 78% LTV based on the original amortization schedule — but you can request removal in writing at 80% LTV once you reach it. If your home has appreciated significantly, you may qualify for a new appraisal that gets you there faster.
LTV isn't just a number lenders track — it's a lever you can pull. A larger down payment, extra principal payments, or a rising market all improve your LTV and unlock better rates, eliminate PMI, and open up equity products. Use the Mortgage Calculator to model how different down payments affect your LTV and monthly cost.
