LTV: Loan to Value

Calculating loan to value for real estate loans


The loan-to-value ratio (LTV) is a measure of the relationship between the loan amount and the value of the property. It is used to determine risk when financing property or making a commercial loan. LTV is a key component in helping real estate lenders determine both the qualification of a borrower and the proposed loan terms.  

A simple way to calculate loan-to-value is: LTV= Loan Amount / Appraised Property Value


80% LTV Mortgage

In this chart the property loan represents 80% of the property value with the owner equity making up the other 20%, thereby totaling 100%.

A lower LTV results in more competitive loan terms and rates, whereas a higher LTV results in greater risk, and therefore less advantageous loan terms for the borrower.  

For example, suppose that a building is worth $10 million and the existing loan is $7 million. That means the LTV is 70%. This would be a lower risk and more competitively priced loan than an $8 million loan (80% LTV) on the same property. 

Leverage constraints vary by property (type and tenancy), underwriting factors (DSCR, debt yield, loan terms, etc), sponsorship and recourse.


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