The LTV (loan-to-value ratio) of a home is a way to compare the loan amount on a property with the property’s value. Lenders commonly use LTV to determine what interest rates they’re willing to offer you.
To calculate LTV, just divide your loan balance by your property’s value. For example:
Generally speaking, borrowers with lower LTVs will qualify for lower rates. This is true whether you’re buying a house or whether you’re refinancing your home.
Lenders tend to charge higher rates when they think there’s more risk, and borrowers who have lower LTVs are perceived to be less risky loans because they have a higher percentage of equity in their house.
If you’re buying a home and have over an 80 LTV ratio (i.e., if you are putting less than 20% down), many lenders will require that you carry and pay for private mortgage insurance (PMI) in addition to your monthly principal and interest payments.
Since the LTV ratio depends only on loan amount and property value, your LTV will change whenever the loan amount changes or when the property value changes. So your LTV will get lower when you pay down your mortgage or when your property appreciates in value.
Example A: Loan pay down without home appreciation
Example B: Loan pay down with home appreciation
Whether you’re refinancing or buying, SoFi offers competitive rates across a range of LTVs. Put as little as 10% down on loans up to $3 million with no PMI, or refinance to new terms or rates. Either way, you’ll enjoy no origination or lender fees.