Work out your Loan-to-Value ratio to see how much equity you have and whether your mortgage or refinance is likely to need private mortgage insurance (PMI).
Loan-to-Value (LTV) is the ratio between how much you are borrowing and the appraised value of the property or asset securing the loan. Lenders use it to judge risk: the higher the LTV, the less equity you have and the riskier the loan looks to a bank.
LTV (%) = (Loan Amount ÷ Property Value) × 100
A buyer takes a $240,000 loan on a $300,000 home. LTV = (240,000 ÷ 300,000) × 100 = 80%, meaning the buyer has 20% equity ($60,000) and typically will not need PMI.
What LTV do I need to avoid PMI? Most conventional lenders drop the PMI requirement at 80% LTV or lower.
Does a lower LTV mean a better interest rate? Generally yes - lenders reward lower risk with more favorable rates.
LTV = (loan amount ÷ appraised property value) x 100.
Lower LTV generally means less lender risk, often resulting in better rates and avoiding PMI.
80% or lower, meaning at least a 20% down payment.