In more detail
LTV = loan / value, where value is usually the lower of the purchase price and the appraisal. With a second loan such as a HELOC, lenders look at the combined LTV (CLTV), all loans secured on the property divided by its value. Higher LTVs usually mean a higher rate and, on many conventional mortgages above 80%, mortgage insurance. In the US, borrowers can ask to cancel private mortgage insurance once the loan reaches 80% of the home's original value, and it ends automatically at 78% if payments are current.
Why it matters
LTV decides your rate, whether you pay mortgage insurance and whether you can refinance or borrow against the home later. As you repay the loan or the home gains value, LTV falls and your equity rises; if prices fall, LTV can rise above 100%.
Example
- Borrowing $240,000 against a $300,000 home: 240,000 / 300,000 = 80%, matching a 20% down payment
- Adding a $30,000 HELOC: CLTV = 270,000 / 300,000 = 90%
- Years later, a $225,000 balance on a home now worth $320,000: LTV = 70.3%
Common confusion
LTV compares a loan with the asset; DTI compares debt payments with income. Lenders check both.