How to Find a Bank's Loan to Value (LTV)
When banks make loans, one factor they use to determine the risk level of a loan is how much of the value of the collateral is paid for via the loan. For example, a person trying to take out a mortgage for $150,000 when the value of the home is only $160,000 is riskier than a person trying to take the same $150,000 mortgage on a $300,000 home. This is because, if housing prices drop and the borrower goes into default, the price of the $160,000 home may go below the amount owed on the loan, which would force the bank to take a loss. The ratio between the loan amount and the value of the collateral is known as the loan-to-value (LTV) ratio.
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Instructions
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Schedule an appraisal to determine the value of the home. If you are just estimating the LTV ratio, you can use an estimate of the home's value. However, if you are trying to establish that you should no longer have to pay for private mortgage insurance or should receive a higher home equity line of credit, your bank will usually require an official appraisal.
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Check your mortgage statement or contact your lender to determine how much money you owe if you are calculating the LTV ratio on an existing loan. If you are estimating the LTV ratio for a potential loan, use the amount you intend to borrow.
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Divide the amount you owe on the loan by the value of the property to calculate the LTV ratio. For example, if your home is worth $385,000 and your loan's balance is $308,000, you would divide $308,000 by $385,000 to get 0.8, or 80 percent.
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Tips & Warnings
When your LTV ratio goes below 80 percent, you can request your lender stop charging private mortgage insurance premiums.
References
- Photo Credit home image by Greg Pickens from Fotolia.com
