What is a Loan to Value?

What is a Loan to Value?

This is the percentage that compares the loan to the value of the property. For example, if you are putting down 20 percent on a property, the loan to value is 80 percent. A loan to value ratio is a term used by lenders to express the ratio of a loan to the value of an asset purchased. The loan to value ratio is calculated by the amount of the mortgage lien divided by the appraised value of a property. The higher your loan to value ratio is, the lower your home equity. Having less than 80 percent of a loan to value presents less risk to lenders. A loan to value ratio can affect interest rates. If the loan to value ratio is 75 percent or lower, the borrower may see a decrease in interest rates.

The mortgage rate you will get is affected by the loan to value thresholds, the lower it is the cheaper the rate. If you have a 90 percent loan to value. This could mean as if you put in 10 percent on a home, you are financing 90 percent of the equity of the home. Another way to say loan to value is (LTV). A good loan to value percentage is at 80 percent.

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