# Loan-to-Value Ratio: LTV Formula, Equity, and PMI

Learn how to calculate loan-to-value ratio, why lenders use LTV, how equity works, and how the DTC LTV calculator interprets the result.

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- **Canonical URL:** https://dothecalculation.com/blog/finance/loan-to-value-ratio
- **Category:** Finance
- **Author:** Do The Calculation Team
- **Published:** 2026-06-25
- **Last updated:** 2026-07-03
- **Reading time:** 11 min read
- **Publisher:** Do The Calculation (https://dothecalculation.com)
- **Methodology:** https://dothecalculation.com/methodology

---

Loan-to-value ratio, usually shortened to LTV, compares the loan balance against the property value. It is one of the clearest ways to see how much of a property is financed by debt and how much is supported by equity.

The Do The Calculation [loan to value calculator](/calculators/loan-to-value-calculator) keeps the math intentionally direct: loan amount divided by property value, expressed as a percentage. It also shows equity amount and equity percentage so the ratio is not just an abstract number.

## Quick Answer

- LTV = loan amount / property value x 100.
- An $320,000 loan on a $400,000 property has an 80% LTV.
- Equity amount equals property value minus loan amount.
- Equity percentage equals equity amount divided by property value.
- Lower LTV usually means more borrower equity and less lender collateral risk.
- For many conventional mortgage discussions, 80% LTV is an important PMI threshold, but loan type and rules matter.
- Use LTV as a risk and structure metric, not as a complete loan approval decision.

## What Loan-to-Value Ratio Means

LTV measures leverage. A high LTV means the loan covers a large share of the property value. A low LTV means the borrower has more equity relative to the property value. Lenders use this ratio because collateral value matters if a loan defaults, but LTV is only one part of underwriting.

For purchase loans, the value input may depend on the purchase price, appraisal, or program rule. For existing loans, people often estimate LTV with the current loan balance and a current property value estimate. Each method can produce a different number, so always know which value a lender is using. On a purchase, the [down payment calculator](/calculators/down-payment-calculator) works the relationship from the other direction: pick a target LTV and it tells you the cash required.

> **Trust and lending disclaimer** — This article explains LTV math and common mortgage context. It is not a loan approval estimate, appraisal, tax opinion, or legal advice. Lenders apply program rules, credit standards, property requirements, debt-to-income analysis, and disclosures that may differ from this simplified calculator.

## LTV Formula

**Loan-to-value formula**

```
LTV percent = (loan amount / property value) x 100
Equity amount = max(0, property value - loan amount)
Equity percent = equity amount / property value x 100
```
- The DTC calculator treats negative inputs as zero.
- If property value is zero, LTV and equity percentage return 0.
- If the loan is higher than the property value, equity amount is floored at 0 in the calculator output.

_[Figure: What the same property looks like at different LTVs — A $400,000 property can carry very different risk depending on the loan amount.]_

## Worked Example

Assume a property value of $400,000 and a loan amount of $320,000. The calculator divides the loan by the value and then multiplies by 100.

**Calculator-aligned LTV example**
| Output | Math | Result |
| --- | --- | --- |
| LTV ratio | $320,000 / $400,000 x 100 | 80.00% |
| Equity amount | $400,000 - $320,000 | $80,000 |
| Equity percentage | $80,000 / $400,000 x 100 | 20.00% |

This result says 80% of the property value is financed by the loan and 20% is represented by equity. It does not say the borrower qualifies, the appraisal is valid, or PMI can be canceled automatically. To see what that 80%-financed balance actually costs each month, carry the loan amount into the [mortgage calculator](/calculators/mortgage-calculator); to see when scheduled payments bring it under the PMI threshold, use the [amortization calculator](/calculators/amortization-calculator).

Tool: [Use the Loan-to-Value Calculator](https://dothecalculation.com/calculators/loan-to-value-calculator) — Enter loan amount and property value to calculate LTV ratio, equity amount, and equity percentage.

## Why LTV Matters for Mortgages

LTV affects how a lender sees collateral risk. A lower LTV gives more room between the loan and the property value. A higher LTV gives less room if the property value falls, selling costs are high, or the borrower defaults.

Official consumer guidance from CFPB and NCUA highlights the 80% LTV area in private mortgage insurance discussions for many conventional loans. CFPB explains that borrowers may request PMI cancellation when the principal balance is scheduled to reach 80% of the original home value, subject to rules and servicer requirements. NCUA describes PMI as commonly used for high-ratio loans where LTV exceeds 80%.

**How LTV is commonly interpreted**
| LTV range | Typical meaning | Important caution |
| --- | --- | --- |
| 80% or lower | More equity and often a conventional PMI benchmark | Approval still depends on full underwriting. |
| Above 80% | Less equity and possible mortgage insurance context | Rules vary by loan type and program. |
| Near 100% | Very high leverage | Small value changes can remove equity. |
| Above 100% | Loan exceeds estimated value | The calculator floors equity at zero, but the financial issue remains. |

_[Figure: LTV and equity move in opposite directions — On a $400,000 value, every lower loan amount increases equity.]_

## LTV in Purchases, Refinances, and Home Equity Loans

For a home purchase, LTV is often connected to down payment size. For a refinance, LTV compares the new loan amount against the property value being used for the refinance. For home equity borrowing, lenders may also look at combined loan-to-value, or CLTV, which includes more than one lien.

The DTC LTV calculator is a single-loan calculator. It does not calculate CLTV, appraisal adjustments, lender overlays, debt-to-income ratio, credit score, loan limits, or mortgage insurance premiums.

## Common LTV Mistakes

- Using a hopeful market value instead of the value a lender will use.
- Confusing down payment percentage with equity after closing costs.
- Assuming 80% LTV automatically cancels PMI without checking program rules.
- Ignoring second liens when combined loan-to-value matters.
- Using purchase price when the lender is using appraised value, or the reverse.
- Forgetting that property value can change after closing.
- Treating LTV as the only approval factor.
- Ignoring selling costs when estimating usable equity.

## Limitations and Assumptions

The calculator assumes one loan amount and one property value. It does not validate the value, choose the lender value basis, estimate mortgage insurance cost, calculate CLTV, or determine eligibility. It is a math tool for understanding leverage.

Official sources used for fact-checking include CFPB Loan Estimate and PMI cancellation guidance, CFPB mortgage rate comparison material, NCUA Homeowners Protection Act guidance, and Fannie Mae consumer information on private mortgage insurance.

## Related Do The Calculation Tools

Tool: [Mortgage Calculator](https://dothecalculation.com/calculators/mortgage-calculator) — Estimate monthly mortgage payment, taxes, insurance, PMI, and total interest.

Tool: [Home Affordability Calculator](https://dothecalculation.com/calculators/home-affordability-calculator) — Estimate a home price range from income, debts, down payment, and payment limits.

Tool: [Down Payment Calculator](https://dothecalculation.com/calculators/down-payment-calculator) — Plan the savings needed to reach a lower LTV before buying.

## Loan-to-Value FAQs

**What is loan-to-value ratio?**

Loan-to-value ratio is the loan amount divided by the property value, expressed as a percentage.

**How do I calculate LTV?**

Divide the loan amount by the property value and multiply by 100. A $320,000 loan on a $400,000 property is 80% LTV.

**What is equity percentage?**

Equity percentage is the part of the property value not covered by the loan. In the DTC calculator, it equals equity amount divided by property value.

**Is lower LTV better?**

Lower LTV usually means more equity and less collateral risk, but approval and pricing still depend on the full loan file.

**Why is 80% LTV important?**

For many conventional mortgage discussions, 80% LTV is an important PMI benchmark. The exact rule depends on loan type, timing, and servicer requirements.

**Does the calculator determine PMI cancellation?**

No. It shows current LTV math. PMI cancellation depends on legal rules, loan documents, original value, payment history, and servicer process.

**What if the loan is bigger than the property value?**

The calculator can show an LTV above 100%. Equity amount is floored at zero, but the borrower may still be underwater economically.

**What value should I enter?**

Use the value relevant to your decision: purchase price, appraised value, current market estimate, or lender-used value. Label it clearly.

**Is LTV the same as down payment?**

They are related but not identical in every situation. On a simple purchase, 20% down often corresponds to 80% LTV before other adjustments.

**Does LTV include taxes and insurance?**

No. LTV compares loan balance with property value. Taxes and insurance affect payment affordability, not the LTV formula.

**What is CLTV?**

Combined loan-to-value includes multiple loans secured by the property. The DTC LTV calculator is for one loan amount.

**Can LTV change over time?**

Yes. LTV changes when loan balance falls, property value changes, or additional secured debt is added.

**Does an appraisal change LTV?**

It can. If a lender uses a lower appraised value than expected, the LTV may be higher than the borrower planned.

**Can I use LTV for auto loans?**

The same concept can apply to other collateral loans, but this article focuses on property and mortgage usage.

**Does LTV prove I can afford the payment?**

No. LTV measures collateral leverage. Affordability also depends on income, debts, rate, taxes, insurance, term, and cash reserves.

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_Source: [Do The Calculation](https://dothecalculation.com/blog/finance/loan-to-value-ratio). Quote freely with attribution and a link to this page._