Loan-to-Value (LTV) Ratio Calculator

How to Calculate Loan-to-Value (LTV) Ratio

The Loan-to-Value (LTV) ratio is a critical metric used by lenders to assess the risk associated with a mortgage loan. It compares the loan amount to the appraised value or purchase price of the property. This guide will walk you through the process of calculating and interpreting the LTV ratio.

Loan-to-Value (LTV) Ratio Formula

The formula to calculate the Loan-to-Value Ratio is:

$$LTV = \frac{LoanAmount}{PropertyValue} \times 100\%$$

Where:

• $$LoanAmount$$ is the total amount of the mortgage loan
• $$PropertyValue$$ is the appraised value or purchase price of the property

Calculation Steps

1. Determine the loan amount (the total amount you're borrowing)
2. Determine the property value (either the purchase price or appraised value)
3. Divide the loan amount by the property value
4. Multiply the result by 100 to get the percentage

Example Calculation

Let's calculate the LTV ratio for a property with the following details:

• Loan Amount: $180,000
• Property Value: $225,000

Step 1: Apply the formula

$$LTV = \frac{180,000}{225,000} \times 100\%$$

Step 2: Perform the calculation

$$LTV = 0.8 \times 100\% = 80\%$$

Step 3: Interpret the result

The Loan-to-Value Ratio for this property is 80%. This means the loan represents 80% of the property's value, and the borrower's equity is 20%.

Visual Representation

This pie chart illustrates the proportion of the loan amount to the property value in our example calculation, visually representing the 80% LTV ratio.