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7 Feb

Mortgage Monday – L.T.V. – Loan-To-Value

Mortgage Monday

Posted by: Tyler Cowle

One of the industry terms we use is LTV or Loan-to-Value.  What is it and what does it mean for your mortgage?

The Loan-to-Value is basically a number from a simple calculation; which reflects the amount of risk that a lender is willing to take on when considering offering a mortgage to a borrower and it is critical to the mortgage being approved.


LTV = Mortgage Amount/Appraised Value

Example – $600,000 (Mortgage)/$800,000 (Appraised Value) = 75%LTV

Therefore; if this was a purchase, the down payment required would be $200,000


Lenders will set Loan-to-Value maximums based on certain aspects of the application (Insurability, Property type and age, Loan Purpose (purchase, re-finance, HELOC) etc.).  In many instance; these maximums are set to keep in line with regulations (I.e. – refinances can have a maximum of 80% LTV).

In Canada, the maximum Loan-to-Value for a purchase that a lender can go up to is 95%; which means that the minimum down payment required would be 5%.  This type of mortgage is called a High-Ratio mortgage (any mortgage over 80%) and will need to be insured in order to help alleviate the lenders risk and make the lending possible.

The Loan-to-Value is not a static number and is always changing; mortgage payments and fluctuations in the market are large factors accounting for the movement.  The hopes for all homeowners is that the number is always decreasing; however, it is possible for it to increase if the property value decreases.  This is where the mortgage amount is higher than the property value (Negative Equity aka – Underwater).

Check in next Monday for the next Mortgage Tip!

Published by Tyler Cowle