# LTV Calculator

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## LTV Calculator

Buying an asset is a tough decision particularly with the rapid increase in the price of properties. This is the reason because of which, you would not see a lot of people making payments out of their own pockets to buy a home. Most people opt for mortgages and financial assistance options. In this way, they do not have to save a large financial chunk and then pay it. If you are aiming at getting a loan to buy a piece of property, make sure that you know about LTV (Loan to Value) ratio and the factors taken into account when this ratio is being calculated. Let us go through some more details to gain more understanding.

## LTV (Loan to Value) and its calculation

To start with, lets us go through the definition of LTV. When a financial organization gets loan applications, it does not approve or reject them immediately. Financial organizations and loan giving firms execute complex financial procedures to check the chances of application approval. In simple terms, LTV defines the risk percentage of lending the amount of money. On a maximum scale, the LTV ratio should be 80 per cent. Financial companies mostly do not approve loan requests that have an LTV of more than 80 per cent.

## LTV formula

Even if you are not a financial expert, it is important to know how the LTV value is determined. With so many scams and illegitimate monetary activities taking place, knowing about the LTV formula is important. This would help you in understanding how the mortgage payment is being determined. Given below is the formula used to determine LTV

$$LTV = \dfrac{Mortgage Payment}{Appraised Value}$$

• When you talk about the formula of calculating LTV, you need to understand the terms that are being used. In the above formula, you can view three terms namely LTV (Loan to Value), Mortgage Payment and Appraised Property Value. Loan to Value is the ratio of the Mortgage payment and Appraised Property Value. The LTV is calculated in percentage.

## Factors making an impact on the LTV value

If you go through the LTV formula, you would easily determine the factors that have an impact on the LTV value.

### Appraised Value and its effect on LTV

What is the appraised value and which amount does it refer to? The appraised value is the total property price. This includes the mortgage payment as well as the down payment. If you have paid $20,000 as down payment and the mortgage amount is$80,000, the total appraised value would be \$100,000. If the mortgage payment and appraised value are on the higher side, the LTV ratio value would be on the higher side as well. Hence, to keep the LTV on the lower side, it is advisable to reduce the mortgage payment and choose a property with a lower price. Applicants who submit higher down payment sums need smaller mortgage payment sums and this decreases the LTV value. Thus, this increases the chances of the application being accepted.

### Mortgage Payment and its effect on LTV

Along with appraised value, mortgage payment is the second factor affecting the LTV value. Mortgage payment is the amount taken as loan. The greater it is, the greater would be the LTV value. Hence, financial advisors always advise that loan applications should submit the maximum possible percentage of the appraised value as down payment.

## Restrictions of LTV

It is an undoubted fact that each financial option has its limitations and LTV is not an exception by any means. One of the key restrictions of LTV is that it only provides support for primary mortgage. LTV does not apply when you have multiple mortgages on one property. This does happen when one person takes mortgage and then defaults. In such situations, CLTV (Combined Loan to Value) is applied.

## Loan-to-Value vs Combined Loan-to-Value Ratio

It is important to identify the difference between LTV and CLTV. Combined Loan to Value ratio is applied when multiple mortgages are applied on the same property. This concept is applied when someone takes a property on mortgage and then defaults. When the second person buys the property, he has to go through the conditions of CLTV.

## Summing It Up

Getting finances for buying a home is not as easy as it seems. LTV is one of the major concepts which you need to know about. To start with, LTV is the ratio of the amount you have taken as loan (Mortgage Payment) to the total property value (Appraised Value). Mortgage Payment is basically the difference between Appraised Value and Down Payment. Thus, higher mortgage payment means that a low down payment has been made. Similarly, if you are paying a higher percentage as down payment, it would increase the mortgage payment.

On an ideal scale, a minimum of 20 percent should be paid as down payment. Applications with more than 80 percent mortgage payment are likely to be rejected. Financial loan giving organizations have a particular methodology to review house mortgage applications. People who make large down payment percentages have greater chances of getting their applications approved.

In an overall manner, it is important to know about LTV. Before you apply for a mortgage application, you should know about LTV and the impact it has on your application and payments.

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