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Loan To Value

One term you will generally be hearing a lot during your quest for a mortgage will be loan to value, or simply put, LTV.

Loan to value is the amount of the loan you want, divided by the value of your home.

Lets suppose you want to refinance your home in order to get a lower interest rate.

The amount you owe on your current mortgage is $125,000.00, and the appraised value of your home is an estimated $155,000.00.

$125,000.00 divided by $155,000.00 equals 81%. Your loan to value would be 81%

The lower the loan to value on your home, the better off you are, because for starters, you have built a lot of equity in your home which can be drawn upon with a home equity loan, and if not, you are working towards a nice nest egg for your retirement.

A low loan to value plays a determining factor in your interest rate as well. From a lenders point of view, the lower the LTV, the less risk for them, and they generally will reward you with a lower rate.

In order to have the value of your home determined and recorded, you would need to have an appraiser come out and evaluate it. Your lender normally will handle setting this up, however, most appraisers require payment at your doorstep. Look for our articles on Appraisals for more information.

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Doing Your Mortgage Homework

Home Appraisal

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