Loan-to-Value Ratio (LTV)
The loan-to-value (LTV) ratio is the mortgage amount divided by the property's appraised value, expressed as a percentage. An LTV above 80% typically requires private mortgage insurance (PMI) in the US.
$350,000 mortgage on a $500,000 home = 70% LTV. No PMI required.
LTV = Loan Amount ÷ Appraised Property Value × 100. If you buy a $500,000 home with a $100,000 down payment (20%), your mortgage is $400,000 and your LTV is 80%.
Lenders use LTV to measure risk. A lower LTV generally means a lower interest rate because the lender has more equity buffer if the borrower defaults. Most lenders in the US require PMI when LTV exceeds 80%.
As you pay down a mortgage, LTV falls. Once it reaches 80%, you can typically request PMI cancellation — saving $100–300/month on many loans.
Put this into practice with our free calculator:
Open calculator →Related terms
- Principal
- The principal is the original amount borrowed on a loan, or the outstanding balance still owed — excluding interest. On a mortgage, principal is the portion of each payment that reduces the loan balance.
- Amortization
- Amortization is the process of paying off a loan through scheduled, equal payments that cover both principal and interest. Early payments are mostly interest; later payments are mostly principal.
- Debt-to-Income Ratio (DTI)
- The debt-to-income (DTI) ratio is your monthly debt payments divided by your gross monthly income, expressed as a percentage. Most lenders require a DTI below 43% to qualify for a mortgage.