Loan-to-value

Definition

The ratio between the loan amount and the value the lender accepts for the property, expressed as a percentage. It decides almost everything: above 80%, the loan must be insured; at 80% or less, it is conventional with no premium. Example: price of $500,000, down payment of $50,000, loan of $450,000, ratio of 90%, therefore insured. With $100,000 down, the ratio moves to 80% and the premium disappears, a saving of about $12,400 in this case. On a refinance, the maximum ratio is 80%; on a home equity line, the revolving portion is capped at 65% of value. A ratio calculated with an estimated price can change after the appraisal: if the accepted value is lower than the price, the ratio rises and the structure can flip from one side of the threshold to the other.