LTV (loan-to-value)
Real EstateDefinition
The ratio of a loan amount to the value of the asset securing it. The most-watched risk metric in mortgage and commercial real estate lending. Lower LTV = more borrower equity = lower risk for the lender.
Conventional residential mortgages typically allow up to 95-97% LTV (with PMI). Commercial real estate usually caps at 65-75% LTV. Refinances at 80% LTV or below avoid mortgage insurance.
Conventional residential mortgages typically allow up to 95-97% LTV (with PMI). Commercial real estate usually caps at 65-75% LTV. Refinances at 80% LTV or below avoid mortgage insurance.
Formula
LTV = Loan amount / Asset value
Example
A house appraises for $500K and you put 20% down. Loan = $400K. LTV = 400/500 = 80%. After 5 years of paying down principal and 5 years of appreciation, the same loan might have an LTV of 55% — you can refi or pull cash out.