Loan-to-value is the loan amount divided by the property value, expressed as a percentage. It is the single most important risk measure in mortgage lending after credit.
The calculation
$360,000 loan on a $400,000 property = 90% LTV.
On a purchase, lenders use the lower of purchase price or appraised value. Pay $420,000 for a home that appraises at $400,000 and your LTV is calculated on $400,000 — which is why a low appraisal forces you to bring more cash.
On a refinance, appraised value governs.
The thresholds that matter
Pricing does not scale smoothly. It steps at specific points:
- 80% — the big one. At or below, no PMI on conventional loans and materially better pricing.
- 85%, 90%, 95% — PMI rates step up at each, and rate adjustments worsen
- 97% — the conventional ceiling for most first-time buyer programmes
- 96.5% — FHA maximum
- 100% — VA and USDA, for eligible borrowers
Sitting just above a threshold is expensive. If you are at 80.4% LTV, finding another few thousand dollars to cross below 80% can save both the PMI and a rate adjustment — often paying for itself within a year.
LTV, CLTV and HCLTV
Three related measures that appear on your file:
- LTV — first mortgage only, over value
- CLTV (combined) — all liens including second mortgages, over value
- HCLTV (high combined) — uses the full credit limit of any HELOC, not just the drawn balance
A $320,000 first plus a $50,000 HELOC with only $10,000 drawn on a $400,000 home gives 80% LTV, 82.5% CLTV, and 92.5% HCLTV. Programmes have limits on each, and HCLTV is the one that surprises people — an undrawn credit line still counts against you.
How LTV changes over time
Two forces work in your favour: principal reduction through amortization, and appreciation. Both lower LTV.
This matters for removing PMI. Conventional mortgage insurance must be cancelled automatically at 78% based on the original amortization schedule, and you can request removal at 80%. If appreciation has moved you there faster than scheduled, a new appraisal can accelerate it — often worth several hundred dollars a month.
Common questions
80% or below on a conventional loan — meaning 20% down or 20% equity.
On a purchase, the lower of the two. On a refinance, the appraised value.
General information, not advice on your specific situation. Guidelines, limits and pricing change, and vary by lender, programme and state. Nothing here is a commitment to lend or an offer of credit. For tax or legal questions, consult a qualified professional.
Sree Basireddy · Mortgage Loan Officer, NMLS 2705737 · Loan Factory, Inc., NMLS 320841 · Equal Housing Opportunity