What Is Loan-to-Value (LTV) Ratio?

Calculating your LTV ratio is easy. Follow the formula below: 

LTV=(Loan Amount You Owe)/(Total Value of Home) × 100 

If your home is valued at $400,000 and you owe $250,000 on your mortgage, your loan-to-value is 62.5%. 

$250,000/$400,000 × 100 = 62.5% 

If you apply for a home equity loan or HELOC, you could borrow up to 17.5% of your home’s total value, which translates to approximately $70,000. That would bring your loan-to-value to exactly 80%. The percentage of loan to value to borrow against varies by lender and loan type. Some lenders won’t allow you to borrow past this threshold because they want to ensure that the home still has positive equity — if home values drop, the lender would still be able to recoup their money should you default on your loan. This would not be the case if they allowed you to use all of your home’s equity. 

A good loan-to-value (LTV) ratio is generally considered to be 80% or lower. This means the borrower is financing 80% of the home’s value and making a 20% down payment. 

Lenders often prefer an LTV ratio of 80% or below because it indicates a lower risk of default, and it can help borrowers avoid private mortgage insurance (PMI) on conventional loans. Higher LTV ratios, like 90% or 95%, are common but may come with higher interest rates, additional fees, or PMI requirements to offset the lender’s increased risk.