LTV is the most direct measure of borrower equity in a mortgage transaction. A borrower buying a $400,000 home with a $320,000 mortgage has 80% LTV (and 20% equity). A borrower with a $360,000 mortgage on the same home has 90% LTV (and 10% equity).
Why LTV matters
- PMI threshold — conventional loans above 80% LTV require Private Mortgage Insurance until the LTV drops to 80% (or 78% under HPA automatic termination)
- Loan program eligibility — different programs have different max LTV: conventional purchase 95-97%, FHA 96.5%, VA 100%, USDA 100%, jumbo typically 80-90%
- Pricing — interest rates and lender fees often scale with LTV. A 95% LTV loan typically prices higher than a 75% LTV loan with otherwise identical borrower profile
- Refi opportunity — when LTV drops (through home appreciation or paydown), refi opportunities emerge: PMI removal at 80% LTV, cash-out refi at 60-80% LTV, rate-and-term refi if rates have improved
LTV variations
- CLTV (Combined LTV) = (first mortgage + second mortgage or HELOC) ÷ property value. Used when there’s more than one lien on the property
- HCLTV (High-Combined LTV) = (first mortgage + maximum HELOC line) ÷ property value. Treats the full HELOC line as drawn, even if the borrower hasn’t drawn it yet
How LTV is calculated for refinances
For refinances, LTV uses the appraised value at the time of refi, not the original purchase price. If a $400,000 home appreciated to $500,000 and the borrower has a $320,000 mortgage, the refi LTV is 64% — significantly lower than the original 80% LTV at purchase. This is why home appreciation creates refi opportunities even without a rate change.
