What is Loan to Value Ratio?
Imagine that you want to buy a house. You can't afford it, though, unless you take a mortgage - the property costs $200,000. You have analyzed your finances and decided that you have $20,000 available for the down payment.
LTV describes what is the ratio between the loan amount and the total purchase price. It means that, in this case, you will have to follow the steps below.
- Subtract the down payment from the total price to obtain the loan amount:
$200,000 - $20,000 = $180,000
- Divide the loan by the total price:
$180,000 / $200,000 = 0.90
- Finally, multiply this value by 100% to obtain LTV:
LTV = 0.90 * 100% = 90%
How to calculate Loan to Value?
This LTV calculator uses two simple formulas to determine the LTV of a transaction. You can use it in multiple ways - for example, you can input the LTV and total price of the property, and let this tool figure out the other two values.
The two equations are:
purchase price = down payment + loan
Intuitively, the total purchase price is the sum of the down payment (the sum of money you are able to pay from your account) and the loan that the bank lends to you.
LTV = loan / purchase price * 100%
As mentioned earlier, this LTV calculator defines the Loan to Value ratio as the loan divided by the purchase price, expressed as a percentage.