How to Calculate Loan-to-Value Mortgage Ratio

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Mortgage lenders use a variety of methods to assess their risk when lending money and the loan-to-value ratio is one of them. Eighty percent is the magic number in loan-to-value calculations. A borrower whose ratio is above 80 percent will most likely be required to pay for private mortgage insurance, and keep paying until the ratio is reduced below 80 percent. The borrower with a lower ratio, on the other hand, is less of a risk and will receive the best mortgage rates. Determining a loan-to-value ratio is helpful when considering a new mortgage loan, refinancing a current loan or when you are trying to justify removing the private mortgage insurance payments.

Calculate Loan-to-Value for a New Loan

Determine the value of the property. When calculating loan-to-value, this figure is the purchase price.

Subtract the amount of your down payment from the value. For instance, suppose you want to purchase a home valued at $135,000 and you plan to pay 20 percent of the loan amount, or $27,000, as a down payment. $135,000 minus $27,000 is $108,000. This is the loan amount.

Divide the loan amount by the price of the property. Using the above example, $108,000 divided by $135,000 is .80. Therefore, the loan-to-value ratio is 80 percent.

Loan-to-Value Ratio on an Existing Mortgage

Hire a professional appraiser to determine the current value of the home.

Determine how much you still owe on the mortgage. You’ll find this information on your mortgage statement or call your lender for the amount owed.

Divide the value of the home, as calculated by the appraiser, by the mortgage balance. The quotient is the loan-to-value ratio.


  • To obtain a lower loan-to-value ratio, increase the amount of your down payment.