Mortgages
How To Calculate Loan To Value
Loan to value compares what you borrow with what the property is worth. Lenders use it to set pricing, and it decides whether mortgage insurance is required.
Quick Answer
LTV = loan amount / property value
- LTV
- The loan to value ratio, as a percentage
- loan
- The size of the mortgage, in currency
- value
- The appraised value or purchase price, whichever is lower
- equity
- The value minus the loan
Divide the mortgage by the property value and express it as a percentage. A 240000 loan on a 300000 home gives an LTV of 80 percent, so the deposit is 20 percent and the equity is 60000.
What Is Loan To Value?
Loan to value, always shortened to LTV, is the loan amount divided by the value of the property securing it. It is quoted as a percentage, and it is one of the first numbers a lender calculates.
The value used is the lower of the purchase price and the appraisal. If you agree to pay more than the appraiser thinks the home is worth, the lender will use the appraisal, which raises your LTV even though nothing about the loan changed.
A 20 percent deposit gives an 80 percent LTV, which is the traditional threshold for avoiding mortgage insurance. Below 80 percent most lenders drop the insurance requirement, which is why the number is quoted so often.
Above 80 percent the loan is considered higher risk, and lenders price it accordingly. At 95 percent the interest rate is usually higher, and at 97 percent or more the loan moves into a different risk category entirely.
Equity is the mirror image of LTV. Equity percent is one minus the LTV, and the cash amount is the value minus the loan. A 300000 home with a 240000 mortgage has 60000 of equity, which is 20 percent.
LTV falls in two ways. Paying down the balance reduces the numerator, and rising house prices increase the denominator. Both help, but only the first is under your direct control.
Refinancing depends on the current LTV, not the original one. A home bought at 80 percent LTV may now be at 60 percent after several years of payments and price growth, which unlocks better rates and removes insurance.
Home equity loans and lines are limited by LTV too. A combined loan to value limit, often 80 or 85 percent, caps how much can be borrowed on top of the existing mortgage.
Buy-to-let lending uses a lower maximum LTV, typically 75 to 80 percent, because rental income is less certain than salary. The same formula applies but the threshold is different.
Appraisal shortfalls are a real risk. If the appraisal comes in below the agreed price you must either bring more cash, renegotiate, or accept a higher LTV with its higher rate and insurance.
Remortgaging away from insurance is usually automatic once LTV passes 80 percent, but you have to ask. Lenders rarely volunteer the removal, and the saving is often worth a phone call.
For new builds the value used is sometimes the completion value, and the valuation may be valid only for a limited period. Extending it can mean a fresh appraisal and a changed LTV.
Portfolio lenders and building societies sometimes allow higher loan to value ratios than banks, but they usually price the extra risk into the rate.
A loan to value of exactly 80 percent leaves no room for a valuation shortfall, so many borrowers aim for 75 percent to keep a buffer.
Equity release and lifetime mortgages have their own ceilings that depend on age, because the loan is repaid only on death or a move.
When remortgaging, the ratio is calculated on the current market value, which is why a rising market can unlock a cheaper deal without any change to the balance.
Shared ownership starts with a low loan to value on the owned share and staircases upward with each purchase, so the ratio changes over time.
Formula
LTV = loan amount / property value
Formula page →The loan divided by the property value, expressed as a percentage.
| Symbol | Meaning | Unit | Notes |
|---|---|---|---|
| LTV | Loan to value | percent | The ratio as a percentage. |
| L | Loan amount | currency | The size of the mortgage. |
| V | Property value | currency | The lower of the purchase price and the appraisal. |
equity percent = 1 - LTV, equity amount = value - loan
Formula page →Equity is the part of the value you own outright.
| Symbol | Meaning | Unit | Notes |
|---|---|---|---|
| equity percent | Equity share | percent | One minus the LTV, as a percentage. |
| equity amount | Equity value | currency | The value minus the loan. |
deposit = value - (target LTV x value)
Formula page →How much cash is needed to reach a chosen LTV.
| Symbol | Meaning | Unit | Notes |
|---|---|---|---|
| deposit | Deposit | currency | The cash needed at completion. |
| target LTV | Target ratio | decimal | Usually 0.80 to avoid mortgage insurance. |
| value | Property value | currency | The purchase price or appraisal. |
How To Calculate Loan To Value
- 1
Establish the property value
Use the lower of the agreed price and the appraisal. In the example the home is valued at 300000 and the appraisal matches, so 300000 is the denominator.
- 2
Divide the loan by the value
240000 divided by 300000 is 0.8, so the LTV is 80 percent. Anything at or below this level avoids mortgage insurance with most lenders.
- 3
Find the equity
300000 minus 240000 is 60000 of equity, which is the 20 percent deposit expressed in cash. Equity percent is simply one minus the LTV.
- 4
Check the maximum loan
At an 80 percent ceiling the most this value supports is 240000, so the deposit of 60000 is exactly what is needed to stay at the threshold.
Examples
Example 1: A 240000 mortgage on a 300000 home
- Property value
- 300000
- Loan amount
- 240000
| Step | Calculation | Result |
|---|---|---|
| Divide loan by value | 240000 / 300000 | 0.8 |
| Loan to value | 0.8 x 100 | 80 |
| Equity amount | 300000 - 240000 | 60000 |
| Equity percent | (1 - 0.8) x 100 | 20 |
Result: A 240000 mortgage on a 300000 home gives a loan to value of 80 percent. The deposit is 20 percent, or 60000 of equity, which is exactly the threshold most lenders use to drop mortgage insurance.
Example 2: A 400000 mortgage on a 450000 home
- Property value
- 450000
- Loan amount
- 400000
| Step | Calculation | Result |
|---|---|---|
| Divide loan by value | 400000 / 450000 | 0.888889 |
| Equity amount | 450000 - 400000 | 50000 |
| Equity percent | 1 - 0.888889 | 0.111111 |
| Maximum loan at 80 percent | 0.8 x 450000 | 360000 |
| Extra deposit needed | 400000 - 360000 | 40000 |
Result: A 400000 mortgage on a 450000 home gives a loan to value of 88.8889 percent, leaving 50000 of equity. Reaching an 80 percent LTV needs a 360000 loan, so another 40000 of deposit would be required.
Calculator
Loan to value
80.00%
- Equity
- 20.00%
- Equity in cash
- 60,000
- Maximum loan at 80 percent
- 240,000
- Deposit needed for 80 percent
- 60,000
Values update as you type. This calculator covers the single scenario its formula assumes — see Common Mistakes for what it leaves out.
Prefer a full-width tool? Open the Loan To Value calculator page.
Common Mistakes
Using the agreed price instead of the appraisal
Lenders use the lower of the two. If the appraisal is below the price, your real LTV is higher than the price-based calculation suggests.
Confusing LTV with the deposit percentage
They are complements. An 80 percent LTV means a 20 percent deposit, and reporting one as the other doubles or halves the figure.
Adding fees into the loan without rechecking the LTV
Rolling arrangement fees into the mortgage raises the numerator. A 240000 loan plus 3000 of fees is an 81 percent LTV, which can reintroduce insurance.
Using the original LTV after several years
The current LTV matters for remortgaging. Payments and price growth lower it, so a loan taken at 90 percent may now sit near 70 percent.
Ignoring the combined limit on second charges
Home equity lending is capped by the combined loan to value, not the first mortgage alone. Adding a second charge can push the total past the limit.
Comparing an LTV across different property types
Buy-to-let lenders allow lower LTVs than residential ones. A 75 percent rental LTV is a different risk position from the same number on a home.
FAQ
What is a good loan to value ratio?
At or below 80 percent is the usual target, because most lenders drop mortgage insurance at that level. Lower is always better for pricing.
How is loan to value calculated?
Divide the loan amount by the property value and multiply by 100. A 240000 loan on a 300000 home is 80 percent.
What LTV can I get with a 10 percent deposit?
A 10 percent deposit means a 90 percent LTV. These loans exist but carry higher rates, and mortgage insurance usually applies until the balance falls to 80 percent.
Does LTV go down over time?
Yes. Every payment reduces the loan, and rising property values increase the denominator, so the ratio falls from both directions.
What happens if the appraisal is lower than the offer?
The lender uses the appraisal, so your LTV rises. You can bring more cash, renegotiate the price, or accept the higher LTV and its pricing.
How do I remove mortgage insurance?
Ask once the balance falls below 80 percent of the current value. Many lenders remove it automatically on request, and some do so without being asked.
References
- [1]Wikipedia, Loan-to-value ratio — https://en.wikipedia.org/wiki/Loan-to-value_ratio
- [2]Wikipedia, Mortgage insurance — https://en.wikipedia.org/wiki/Mortgage_insurance
- [3]Wikipedia, Equity (finance) — https://en.wikipedia.org/wiki/Equity_(finance)