How LTV Is Calculated
The Loan-to-Value ratio expresses the mortgage amount as a percentage of the property's appraised value or purchase price (lenders use the lower of the two).
LTV Formula
LTV = Loan Amount ÷ Appraised Value × 100 | Example: $320,000 loan on $400,000 home = 80% LTV
A lower LTV means the borrower has more equity, reducing lender risk. In default, a property must be sold for at least the outstanding loan amount for the lender to recover their funds — hence why high LTVs require mortgage insurance.
LTV Thresholds & Their Consequences
| LTV Range | Down Payment | PMI Required | Rate Impact | Products Available |
|---|---|---|---|---|
| ≤ 60% | 40%+ | No | Best rates | All products |
| 61–75% | 25–39% | No | Very good | All products |
| 76–80% | 20–24% | No | Standard | Conventional, jumbo |
| 81–95% | 5–19% | Yes | +0.2–0.5% | Conventional, FHA |
| 96.5% | 3.5% | Yes (lifetime) | FHA rate | FHA only |
| 100% | 0% | No (fee instead) | VA rate | VA / USDA only |
Private Mortgage Insurance (PMI)
PMI protects the lender (not the borrower) if the borrower defaults when LTV exceeds 80%. PMI costs typically range from 0.5–1.5% of the loan amount annually, added to the monthly mortgage payment.
- Cancellation — Under the Homeowners Protection Act, PMI must be automatically canceled when LTV reaches 78% based on the original amortization schedule.
- Request cancellation at 80% — You can request cancellation once LTV hits 80% through payments, and the lender may also accept an updated appraisal showing appreciation-driven LTV improvement.
- FHA MIP — FHA mortgage insurance premiums are paid for the life of the loan (originated after 2013 with <10% down) — a significant long-term cost.
On a $380,000 loan with 1% annual PMI, the monthly cost is $317 — an additional $3,800/year until LTV reaches 78%. At 4 years to reach 78% LTV, that's ~$15,200 in PMI payments alone.
CLTV — Combined Loan-to-Value
When a borrower takes both a first mortgage and a second mortgage (HELOC or piggyback loan), lenders calculate the Combined LTV (CLTV) — the total of all loans as a percentage of property value. Lenders typically cap CLTV at 80–90% for conventional products.
The 80/10/10 "piggyback" structure — 80% first mortgage, 10% second mortgage, 10% down — is used to avoid PMI while borrowing above 80% LTV.
