Loan-to-Value Ratio (LTV)

What is Loan-to-Value Ratio (LTV)?

The Loan-to-Value Ratio (LTV) is a measure of how much of a property's value is being financed by a mortgage, expressed as a percentage.

Why Loan-to-Value Ratio (LTV) Matters in Real Estate

In Canadian real estate, LTV helps lenders assess risk when approving a mortgage. A lower LTV means the buyer has more equity, which reduces lender exposure.

LTV formula: LTV = (Mortgage Amount ÷ Appraised Property Value) × 100

• 80% or lower: typically doesn’t require mortgage insurance
• Above 80%: usually requires CMHC or other mortgage default insurance

LTV also affects interest rates, insurance premiums, and approval conditions. Reducing LTV through a larger down payment can lead to better mortgage terms.

Understanding LTV is essential for evaluating affordability, reducing borrowing costs, and planning long-term equity growth.

Example of Loan-to-Value Ratio (LTV) in Action

A buyer puts down $100,000 on a $500,000 home. Their mortgage is $400,000, giving them an LTV of 80%.

Key Takeaways

• Shows what portion of the property is financed.
  
• Lower LTV means less lender risk.
• Impacts insurance and approval.
• Affects rate and terms.
• Key factor in mortgage planning.

Related Terms

• Down Payment
• Mortgage Insurance
• CMHC Insurance
• Home Equity
• Refinance