To calculate your Loan-to-Value (LTV), you simply divide your current loan balance by the current appraised value of your property. This metric is crucial for lenders as it represents the amount of the loan as a percentage of the property's value.
Understanding and Calculating Loan-to-Value (LTV)
The Loan-to-Value (LTV) ratio is a key financial metric used in real estate to assess the risk of a mortgage loan. It helps lenders determine how much they are willing to lend on a property. A lower LTV typically indicates less risk for the lender, as it means the homeowner has more equity built up in the property.
The LTV Formula
The calculation for LTV is straightforward:
Current Loan Balance ÷ Current Appraised Value = LTV
This formula directly translates your outstanding debt into a percentage of your home's worth.
Step-by-Step LTV Calculation
Follow these simple steps to determine your LTV:
- Find Your Current Loan Balance: This is the outstanding amount you still owe on your mortgage. You can typically find this figure on your monthly loan statement or by checking your online loan account.
- Determine Your Current Appraised Value: This is the professional estimate of your property's market value. It's usually determined by a certified appraiser.
- Perform the Division: Divide your loan balance by the appraised value.
LTV Calculation Example
Let's walk through an example to illustrate the process:
- Current Loan Balance: You have an outstanding loan balance of $140,000.
- Current Appraised Value: Your property has a current appraised value of $200,000.
Using the formula:
$140,000 (Current Loan Balance) ÷ $200,000 (Current Appraised Value) = 0.70$
In this example, your LTV is 0.70, or 70%.
What About Combined Loan-to-Value (CLTV)?
Beyond LTV, another important related metric is the Combined Loan-to-Value (CLTV). This is particularly relevant if you have multiple loans on your property, such as a first mortgage and a home equity line of credit (HELOC) or a second mortgage.
The CLTV formula accounts for all outstanding loans against the property:
Current Combined Loan Balance ÷ Current Appraised Value = CLTV
This calculation helps lenders understand the total debt secured by your property relative to its value, providing a comprehensive risk assessment, especially when considering additional financing.
For more detailed information on home equity and related calculations, you can refer to resources like this Bank of America guide: How to Calculate Home Equity.
