By Meraj Uddin Provat · Last reviewed May 23, 2026 · Editorial Standards
LTV (loan-to-value ratio) is your loan amount divided by the home’s value, as a percentage. It quietly controls your interest rate, whether you pay PMI, and whether you’re approved at all. Here’s what it is and why lenders obsess over it.
The one-sentence definition
LTV is how much of the home’s value you’re borrowing — a $320,000 loan on a $400,000 home is 80% LTV. Lower LTV = more equity = less lender risk = better terms.
The formula
`LTV = loan amount ÷ appraised value × 100`
- $400,000 home, 20% down ($80,000) → $320,000 loan → 80% LTV
- $400,000 home, 5% down ($20,000) → $380,000 loan → 95% LTV
The appraised value, not the purchase price, is what counts if they differ — a low appraisal raises your effective LTV.
The LTV thresholds that matter
| LTV | What it triggers |
|---|---|
| ≤ 80% | No PMI on conventional; best rates |
| 80–95% | PMI required; rate rises with LTV |
| > 95% | Limited conventional options; FHA/VA territory |
| 78% | Conventional PMI auto-terminates here |
These bands are why a 20% down payment is the famous target — it lands you at 80% LTV, the threshold where PMI disappears and pricing improves. See the effect in the mortgage payment calculator and when PMI ends in the PMI removal calculator.
Why lenders care so much
LTV is a direct risk measure. At 95% LTV, a 6% price drop wipes out the borrower’s equity and the lender is underwater if they default. At 70% LTV there’s a big cushion. So LTV drives:
- PMI — required above 80%, cancels at 78–80%
- Interest rate — higher LTV usually means a higher rate
- Approval — some programs cap LTV
- Refinance eligibility — cash-out refis are usually capped around 80% LTV
CLTV — when there’s a second loan
If you have a first mortgage and a HELOC or second loan, lenders look at combined LTV (CLTV): all loans ÷ value. A HELOC can push CLTV high even if the first mortgage is modest — relevant when comparing a HELOC vs cash-out refinance.
How to improve your LTV
- Bigger down payment — the direct lever; 20% down = 80% LTV.
- Pay down principal — extra payments lower the loan side. See the mortgage payoff calculator.
- Appreciation — a higher current value lowers LTV; a new appraisal can unlock PMI cancellation or a better refinance.
Frequently asked questions
What LTV avoids PMI? 80% or lower on a conventional loan — no PMI from the start.
Is LTV based on price or appraisal? The lower of purchase price or appraised value, generally. A low appraisal increases effective LTV and can require more cash down.
What’s a good LTV? 80% or below is the sweet spot (no PMI, good rates). Below 80% keeps improving refinance and HELOC options.
Does LTV change over time? Yes — it falls as you pay down principal and as the home appreciates. That’s how PMI eventually cancels.
What is CLTV? Combined loan-to-value — all loans against the home (first mortgage + HELOC/second) divided by value. Lenders use it when there’s more than one lien.
Bottom line
LTV is the lever behind PMI, your rate, and approval. Aim for 80% or lower. See how your down payment and payments move it in the mortgage payment calculator and PMI removal calculator.
Educational explainer, not financial advice.