How to use the Loan-to-Value Ratio
- Enter the appraised or current market value of the property.
- Enter the first mortgage balance — the current balance, not the original loan amount.
- Add any second lien or HELOC balance to get combined LTV.
- Check whether LTV is above 80%, the level at which mortgage insurance and rate premiums usually apply.
- Use the paydown line to see exactly how much principal reduction reaches 80%.
How the calculation works
LTV is the lender's headline risk measure because it determines how much cushion exists between the debt and a forced sale. At 95% LTV, a modest price decline plus selling costs wipes out the collateral entirely; at 70% there is substantial room. That is why pricing steps down in bands — 80%, 75%, 70% — rather than sliding smoothly, and why crossing a band boundary can change your rate meaningfully.
Combined LTV matters whenever a second lien exists. A first mortgage at 60% LTV looks safe until a HELOC takes the combined figure to 92%. Lenders underwrite the combined number for new credit decisions, and it is the figure that determines whether further borrowing against the property is possible at all.
The value in the denominator is whichever appraisal the lender accepts, not what a listing site estimates or what a neighbour's home sold for. On a purchase, lenders use the lower of price and appraised value, so an appraisal that comes in under the contract price raises your LTV and can force more cash to closing. On a refinance the appraisal governs outright, which is what makes ordering one worthwhile when local prices have run.
LTV = loan balance ÷ appraised value × 100; CLTV = (all liens) ÷ appraised value × 100Source: Fannie Mae Selling Guide B2-1.5-02 loan eligibility and LTV ratios; OCC Interagency Guidelines for Real Estate Lending, 12 CFR Part 34 Subpart D.
Worked example
A home appraised at $400,000 with a $320,000 first mortgage and no second lien.
- LTV = 320,000 ÷ 400,000 = 80.00%.
- Equity = 400,000 − 320,000 = $80,000, or 20%.
- The 80% balance threshold is 400,000 × 0.8 = $320,000.
- The balance is already at the threshold, so no further paydown is needed.
Exactly 80% LTV — the boundary at which PMI drops away and conventional pricing improves.
Frequently asked questions
What LTV do I need to avoid PMI?+
80% or below on a conventional loan, which means 20% equity through a down payment, principal paydown or appreciation.
Does home appreciation lower my LTV?+
Yes, but the lender only recognises it after an accepted appraisal. Rising prices do not change your ratio on the lender's books until it is documented.
What is a good LTV for refinancing?+
Below 80% gives access to the best pricing. Above 80% usually means mortgage insurance or a rate premium, and above 97% few conventional options exist.
How is CLTV different from LTV?+
LTV counts only the first mortgage; CLTV counts every lien on the property. Lenders underwrite new credit against CLTV.
Last reviewed September 1, 2026. We review this page whenever the underlying formula, tax year, published rate or standard changes.