Quick takeaway

Loan-to-Value (LTV) is a simple percentage with big consequences: it helps lenders decide whether to approve a mortgage, what interest rate to charge, and whether you must buy mortgage insurance. Understanding your LTV — and the ways to lower it — can save thousands over the life of a loan.

How LTV is calculated

Formula: LTV = (Loan amount ÷ Property value) × 100

Example: Purchase price or appraised value = $300,000; down payment = $60,000; loan amount = $240,000.

LTV = ($240,000 ÷ $300,000) × 100 = 80%

Use the lower of appraised value or purchase price when calculating LTV for a purchase loan because lenders generally rely on the appraisal to set value.

Common LTV thresholds and what they mean

  • 80% or lower — considered low risk for conventional loans. Borrowers typically avoid private mortgage insurance (PMI) and qualify for the most competitive interest rates (Consumer Financial Protection Bureau).
  • 81%–90% — moderate-to-high risk. Conventional loans usually require PMI; rates are higher than for ≤80% LTV.
  • Above 90% — high risk. Higher rates, mandatory mortgage insurance for conventional loans; government programs (FHA, VA, USDA) may allow higher LTVs with program-specific insurance or guarantees.

Note: Exact allowable maximums and rate tiers vary by program and lender. For example, FHA loans commonly allow up to about 96.5% LTV for purchase transactions, while VA and USDA programs can offer 100% financing for eligible borrowers (U.S. Department of Housing and Urban Development; Department of Veterans Affairs). For program rules and eligibility check the HUD and VA sites.

How LTV affects pricing and borrower costs

  1. Interest rate: Lenders treat higher LTV as greater default risk, so borrowers with higher LTVs often pay higher mortgage rates.
  2. Mortgage insurance: Conventional loans with LTVs above 80% generally require PMI until LTV falls. FHA loans require mortgage insurance premiums (MIP) under their rules. The cost and duration of insurance differ by program; borrowers should review HUD (FHA) and CFPB guidance.
  3. Loan eligibility and terms: High-LTV loans may face additional underwriting scrutiny (reserves, credit score minimums, documentation) and could disqualify some borrowers from certain programs.

Authoritative reference: Consumer Financial Protection Bureau — guide to mortgage insurance and costs (https://www.consumerfinance.gov).

Different LTV measures lenders use

  • LTV (Loan-to-Value): Ratio of the primary mortgage to the property value.
  • CLTV (Combined Loan-to-Value): Includes the current or new first mortgage plus any second mortgage or HELOC divided by value. Useful for borrowers with simultaneous loans or home equity lines. See our page on Combined LTV for details: Understanding Combined LTV (CLTV) and Its Effect on Refinance Eligibility (https://finhelp.io/glossary/combined-ltv-cltv-and-its-effect-on-refinance-eligibility/).
  • HCLTV (High CLTV): Used when the second lien equals the maximum credit line and is added to the first mortgage; affects refinance limits and pricing.

If you have multiple liens, lenders will often evaluate CLTV or HCLTV rather than simple LTV.

(For more on mortgage insurance on high-LTV loans, including cost drivers and typical fee ranges, see our guide: Mortgage Insurance on High-LTV Loans: How Costs Are Calculated (https://finhelp.io/glossary/mortgage-insurance-on-high-ltv-loans-how-costs-are-calculated/)).

Appraisals, market value swings, and “current” LTV

LTV can change after closing. If your property value rises or you pay down principal, your LTV falls; if values drop, your LTV increases. Lenders calculate LTV using either the original purchase price/appraisal or a later appraisal depending on the action (e.g., refinance or PMI cancellation). Always confirm with your servicer which value they will use for PMI removal or refinance underwriting.

Practical examples

  • Purchase: $250,000 home, $25,000 down, loan $225,000 → LTV = 90% → likely PMI required on conventional financing.
  • Refinance: Home value $400,000, outstanding loan $280,000 → LTV = 70% → potential to refinance into a lower rate and remove PMI.

Real-world implication: Borrowers who wait to refinance until their LTV drops below 80% can often save enough on monthly mortgage payments to cover closing costs within a few years.

Strategies to lower your LTV (and your mortgage costs)

  1. Bigger down payment: The most direct way to reduce LTV at purchase.
  2. Make extra principal payments: Paying an extra amount each month reduces principal faster and lowers LTV.
  3. Refinance when appropriate: If home values rise or you’ve paid enough principal, refinance to obtain better pricing or eliminate PMI.
  4. Use a second mortgage or piggyback loan carefully: A 80/20 structure can avoid PMI but often carries higher blended costs—run the numbers.
  5. Document improvements that increase appraised value: Quality renovations can raise appraised value and reduce LTV if a new appraisal supports the higher value.
  6. Seek down-payment assistance or community programs if eligible.

PMI removal and borrower rights

For conventional loans, borrowers can typically request cancellation of PMI once LTV reaches 80% based on the original value; lenders must terminate PMI automatically at 78% if borrower payments are current, under the Homeowners Protection Act (learn more at ConsumerFinancialProtection.gov).

Be aware: some lenders require a new appraisal or evidence of value before approving cancellation, and CLTV/HCLTV or subordinate liens can affect eligibility.

When high LTV is reasonable

High LTV makes sense in certain situations:

  • Limited cash for down payment but strong long-term income prospects.
  • Using VA or USDA financing with 100% LTV helps eligible borrowers buy without a down payment.
  • Strategic investments: Investors may intentionally use high LTVs to preserve capital, understanding the trade-off in cost and risk.

Always balance immediate purchase goals against long-term cost — higher LTV increases financing costs and lowers equity buffers against market declines.

Lender differences and shopping tips

Different lenders and loan programs treat LTV differently. Steps to find the best deal:

  • Get multiple rate quotes and ask lenders how they tier rates by LTV.
  • Ask whether they use original value or current appraisal for PMI removal and refinancing.
  • Compare total costs (rate, fees, mortgage insurance), not just the headline interest rate.

For details on program limits (e.g., conventional 97% LTV options, FHA 96.5% LTV, VA/USDA 100% financing), review the lender’s program guidelines and government agency sites: Fannie Mae, HUD/FHA, and VA (Fannie Mae; HUD.gov; VA.gov).

Common mistakes and misconceptions

  • Thinking LTV is the only factor: Loan decisions also depend on credit score, debt-to-income ratio, employment history, reserves, and property type.
  • Assuming PMI is the same across programs: FHA MIP and conventional PMI differ in cost structure and duration. FHA usually requires MIP for most loans; conventional PMI can be canceled.
  • Relying only on market estimates: Automated valuation tools can be wrong. Use a formal appraisal or a licensed agent’s CMA for accuracy.

Action checklist (for borrowers)

  • Calculate your current LTV using your lender’s appraisal or your most recent closing statement.
  • If LTV >80% and you want to avoid PMI, plan for a larger down payment or alternative financing.
  • If you have PMI and your balance has fallen to 80% (or you have 22% equity), contact your servicer about cancellation steps.
  • If you’re refinancing, ask the lender which LTV measure (original vs. current) and valuation method they’ll use.

Sources and further reading

Professional disclaimer

This article is educational and reflects general rules and practices current as of 2025. It is not personalized financial or legal advice. Loan terms vary by lender, program, and your personal profile. Consult a licensed mortgage professional or housing counselor for guidance tailored to your situation.