What is loan to value ratio (LTV)? How it affects your mortgage

Loan to value ratio (LTV) compares your mortgage loan amount to the value of your home.

For instance, if you put 10% down, you'd need to finance the other 90% of the home price. Your LTV on this loan would be 90%.

LTV matters to borrowers because it helps measure the lender's risk, and risk can affect the loan's mortgage rate and mortgage insurance fees.

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How to calculate your LTV ratio

The LTV formula is simple enough:

LTV = (Loan amount ÷ Appraised value) × 100

For a home loan of $360,000 and an appraised home value of $400,000, LTV would be 90%.

Notice that lenders use the home's appraised value, not the purchase price you've agreed to pay. Meanwhile, down payment is measured against the purchase price.

This distinction can create confusion for buyers.

What LTV ratio means for your mortgage

LTV is one of the primary factors lenders use to assess the financial risk they're taking with a home loan. Loans with higher LTVs tend to create higher risk of losing money.

For example, if you put no money down, your LTV would likely be 100%. If you failed to make payments and the lender eventually foreclosed and sold the home, the lender would struggle to recover losses.

Meanwhile, if you put 20% down, creating an LTV of 80%, and failed to make payments, the lender would find itself in a better position to recover losses.

This is why loans with higher LTVs often require higher mortgage rates and higher mortgage insurance premiums. These measures help reduce the lender's risk from a higher LTV.

LTV and interest rates

Most lenders price mortgage rates in tiers based on LTV. A borrower at 75% LTV typically receives a better rate than the same borrower at 90% LTV with all other factors being equal.

The difference between rate tiers is not always dramatic, but on a $350,000 loan spread over 30 years, even a 0.25% rate difference can add up to tens of thousands of dollars.

LTV and PMI

On conventional loans, an LTV above 80% typically requires the borrower to add private mortgage insurance (PMI). PMI can reimburse the lender if it loses money because the borrower defaulted.

Depending on loan size and LTV, private mortgage insurance could add about $50 to $200 to the monthly payment. Once the loan's balance falls to 80% of the home's appraised value, the borrower can cancel PMI.

Government-backed loans, such as FHA loans, come with government mortgage insurance, so these borrowers won't have to pay for PMI. They will, however, pay mortgage insurance fees required by their loan type. Only VA loans, reserved for military veterans, require no ongoing mortgage insurance fees.

LTV thresholds by loan type and purpose

Different loan programs set different LTV maximums. Here is how the key thresholds break down:

Loan type / purpose	Maximum LTV	PMI or MIP required?
Conventional purchase	97%	Yes, until LTV falls to 80%
FHA purchase	96.5%	Yes — for life of loan in most cases
VA purchase	100%	No
Conventional rate-and-term refinance	97%	Yes, if LTV above 80%
HELOC / home equity loan	Up to 80–90% CLTV	N/A

To be clear, staying below maximum LTV won't guarantee loan approval. LTV is only one factor in loan eligibility. Borrowers must also meet credit score and monthly debt rules.

One fast way to see where you stand: Get a mortgage pre-approval. Better's pre-approval can show results within as little as three minutes through a soft credit check that shouldn't hurt your credit score.

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Combined loan to value (CLTV)

So, if LTV measures the size of the loan as compared to the value of the home. What does a lender mean by CLTV?

CLTV stands for combined loan-to-value ratio. It measures all mortgage debt on the home — not just the primary mortgage loan — against the appraised value of the home.

CLTV matters when you get a second mortgage such as a home equity loan or home equity line of credit.

Here's the formula: CLTV = (All loan balances ÷ Appraised value) × 100

Let's put this formula to work with an example:

If your home is worth $400,000 and you owe $250,000 on the mortgage, how much can you borrow with a HELOC or home equity loan?

For this example, we'll say the lender caps CLTV at 75%. 75% of $400,000 is $300,000, so that means combined mortgage debt couldn't exceed $300,000.

Since your primary mortgage is already taking up $250,000 of this $300,000, you'd have $50,000 available to borrow with a HELOC.

Most lenders cap CLTV at 80–90% when you apply for a second mortgage.

How your LTV changes over time

LTV is not fixed. It can move in your favor as you pay down your mortgage balance and as your home's value increases. Those gradual changes can open new doors.

Principal paydown

Every mortgage payment reduces your loan balance, which reduces your LTV. In the early years of a 30-year loan, most of your payment goes toward interest, so the LTV reduction is gradual. It accelerates in later years as the amortization schedule shifts more of each payment toward principal.

Home value appreciation

If your home appreciates in value, your LTV falls even if your loan balance stays the same. Home appreciation has historically been a meaningful driver of equity growth for long-term homeowners.

Significant appreciation can push your LTV below 80% faster than scheduled payments alone.

Key LTV milestones to watch:

LTV milestone	What it unlocks
Below 97%	Conventional loan eligibility (purchase)
Below 90%	Better rate tiers on many conventional products
Below 80%	PMI removal eligibility; cash-out refinance access; better rates
Below 80% CLTV	HELOC and home equity loan access at standard terms
Below 75%	Most favorable rate tiers; maximum equity product access

When your LTV hits 80%, whether through paydown, appreciation, or both, can request that your loan servicer remove private mortgage insurance from your loan. Once LTV reaches 78%, PMI should expire on its own.

If you have an FHA loan and put less than 10% down, you'll be charged the FHA's mortgage insurance throughout the life of the loan. But you could refinance into a conventional loan without PMI once LTV falls to 80% or below.

FAQs about mortgage LTV

What is a good LTV ratio to get approved for a mortgage?

The lower your LTV, the less risk your loan presents to the lender which can create better terms for you, the borrower. The loan type you use can change this math. Getting a pre-approval can help you compare costs for different loans at the same LTV.

Does a high LTV ratio mean I have to pay PMI?

On conventional loans, an LTV above 80% generally means you'll need to pay for PMI. Once your LTV falls to 80%, you can request removal. FHA loans require MIP (mortgage insurance premium) regardless of LTV. VA loans have no mortgage insurance requirement at any LTV.

What LTV do I need to refinance my mortgage?

For a conventional rate-and-term refinance, most lenders can allow up to 97% LTV. For a cash-out refinance, the standard maximum is 80% LTV, meaning you must retain at least 20% equity after the new loan closes. For a HELOC or home equity loan, lenders typically look at your combined loan to value (CLTV) across all loans, with most capping at 80–90% CLTV.

How does my LTV change over time as I pay down my mortgage?

Your LTV should fall as your loan balance decreases through regular payments and as your home's appraised value increases.

What is the difference between LTV and CLTV?

LTV (loan to value) measures a single loan against the property value. CLTV (combined loan to value) measures all loans secured by the property. Usually, CLTV combines a primary mortgage with a second mortgage and compares the total loan amounts to the appraised value.

The bottom line on LTV

LTV is one of the most important numbers in your mortgage profile. It influences your interest rate and mortgage insurance requirements.

A larger down payment lowers your LTV at purchase, opening up more ways to save on long-term and monthly costs.

Get a mortgage pre-approval to see how your personal finances affect your mortgage eligibility.

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