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WHAT
IS A LOAN-TO-VALUE RATIO?
The
Loan-to-Value Ratio (LTV) is the
ratio between the loan amount
(or balance) and the market value
(or price) of the property expressed
as a percentage.
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LOAN-TO-VALUE
(LTV) EXAMPLE
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A
property has a loan balance
of $1,500,000 and a market
value of $2,000,000.
The property has a LTV of
75%.
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Loan
Balance: $1,500,000 |
| 75%
LTV = |
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Market
Value:  $2,000,000 |
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The LTV is useful in determining
equity in an investment property.
The above example shows 25% equity.
An investor can multiply .25 times
the property market value to determine
the equity held.
The LTV is also used when
an investor wishes to refinance
a property. For example, you
have owned an investment property
for a number of years and you
would like to refinance the
property to take cash out. Most
lenders will allow a maximum
of 75% the appraised value for
the new loan amount. Lenders
who refinance at LTVs greater
than 75% will usually charge
less favorable interest rates.
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