Loan To Value (LTV)

Loan-to-value? Is It As Simply As It Sounds?

Pretty much!

Let’s separate the phrase ‘loan-to-value’.

You have your ‘loan’, which is how much you will be borrowing from the lender.

Then you have your ‘value’, which is the market price of what you will be purchasing.

Compare these two with a simple equation and lenders can have a better idea of how much money you’ll be required to provide for a down payment on your mortgage, contributing to how low or high risk your investment will be.

If you provide a higher down payment, this will lower your loan-to-value ratio making lending to you a more attractive option to the lenders. Lender’s don’t like lending to individuals with significant bad debt. They like low risk borrowers with a low loan-to-value ratio!

How Do I Know How Much My Loan-to-Value Ratio Should Be?

Typically lenders will divide your borrowed mortgage amount by the appraised market value of your property.

For example:

Loan to Value (LTV) = mortgage amount / appraised property value

Let’s turn this into a real life situation:

You have a $80,0000 down payment for a home that costs $400,000. This means you are seeking a mortgage to cover the remaining $320,000 ($400,000 - $80,000 = $320,000).

LTV = 320,000 / 400,000

= .8 or 80%

Your loan-to-value ratio would be 80%.

What's A Good Loan-To-Value Ratio?

Lenders differ in what’s acceptable for them to approve, but generally speaking an LTV ratio should be no higher than 80% for a residential mortgage. This would be similar to a 20% down payment on your home.

Of course there are certain circumstances which you may still get approved for with a LTV ratio that’s higher than 80%. These include:

• Being a first time home buyer and taking advantage of the First Time Home Buyer’s Incentive (insured mortgage)
• Using a different form of lending like alternative lending (B-lending) or private lending
• Already having home equity in a different property or using a Home Equity Line Of Credit (HELOC) to be approved for another mortgage

There are more variables available which is why speaking to a licensed mortgage broker can help with getting you approved for a mortgage. They’re experts of the borrowing industry; they know which areas to focus on and what documents to submit on your behalf to increase your chances of being approved!

I Have An Acceptable Loan-To-Value, Now What?

That’s great! But having a high LTV ratio on it’s own isn’t enough to guarantee your approval. Lenders will also look at things like:

• Your credit score to determine your spending habits and reliability for paying back a loan
• Be well-versed with credit 101 for ways to increase your credit score
• Your employment history, income and whether or not you’re self-employed
• Your assets (company ownerships, rental properties owned by you etc.) and liabilities (revolving credit etc.)

Taking The Next Steps

Whether you’re looking to own a home for the first time, or you need to refinance or renew an existing mortgage, I’d love to help!

I’m Kyle Benzies (licensed mortgage broker); my award-winning services help guide clients (just like you) into fantastic mortgage deals.

To chat about your mortgage options, I'm just an easy no-risk phone call away!

***other conditions may apply to anything listed above. The information provided on this page should NOT be implicitly relied upon, and may not be 100% up to date. It's best to contact us for the most current conditions/program offerings for first time buyers***