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Loan-to-value ratio (LTV): Definition, Formula and Example

LTV compares a loan balance with a stated property value; combined LTV includes the relevant loans secured by the same property.

Scope: General financial concept; examples are hypothetical.

Other names and related labels: LTV; Combined loan-to-value (CLTV).

How it works

A larger down payment generally lowers initial LTV when the value basis is unchanged. Underwriting may use an appraisal, purchase price or a specified combination. Second liens require a combined measure; equity percentage and LTV describe different sides of the same simplified balance sheet.

LTV = loan balance / property value × 100%; CLTV = relevant secured loan balances / property value × 100%

State the value date and which liens are included. A lender may treat a HELOC’s drawn balance or full credit limit differently for particular underwriting ratios.

$240,000 borrowed on a $300,000 property

Use the same $300,000 value for each ratio.

  1. First-loan LTV: $240,000/$300,000 = 80%.
  2. Adding a $15,000 second loan gives combined debt of $255,000.
  3. CLTV: $255,000/$300,000 = 85%.

LTV is 80%; the illustrated CLTV with the second loan is 85%.

Both balances outstanding at the same date; not a lender approval or an allowed-CLTV limit.

The worked example uses the assumptions above. Related tools may model a different scope; check their descriptions before comparing results.

LTV does not show monthly affordability

A low ratio does not establish adequate income or credit. If property value falls, LTV can rise without new borrowing. Do not ignore a second lien when estimating available borrowing room.

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Sources and checks

Definition and example arithmetic checked . Sources explain the concepts; numerical examples use the assumptions stated above.

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