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Loan-to-Value Ratio Guide: The Number That Determines Your Mortgage Rate and PMI

•9 min read•By KBC Grandcentral Research Team

The difference between an 80% and 85% LTV on a $400,000 mortgage can mean paying $200/month in PMI, a 0.25–0.75% higher interest rate, and being locked out of the best lender programs. LTV — loan-to-value ratio — is the single most important risk metric lenders use, and understanding it changes how you approach down payments, refinancing, and home equity.

$500,000 HomeLoan: $400,000LTV = 80%Equity: $100,000 (20%)LTV Impact on Mortgage TermsLTVRate PremiumPMI RequiredPrograms≤60%NoneNoAll programs61–70%+0.1–0.2%NoMost programs71–80%+0.2–0.5%NoStandard81–90%+0.5–1.0%YesMost conventional91–97%+1.0–2.0%Yes (expensive)FHA/VA onlyLTV Drives Every Mortgage Decision

Key Takeaways

  • LTV = Loan Amount ÷ Appraised Value × 100 — the percentage of the home's value you're borrowing
  • 80% LTV is the magic threshold — above it, PMI is required and rates increase; below it, you get the best terms
  • PMI drops off at 78% LTV automatically, or can be requested at 80% under the Homeowners Protection Act
  • CLTV (combined LTV) accounts for all mortgages on a property — second mortgages matter to lenders
  • Refinancing below 80% LTV can eliminate PMI and lower your rate simultaneously

How LTV Is Calculated

The formula: LTV = (Loan Amount ÷ Appraised Value) × 100. The appraised value matters more than the purchase price — lenders use the lower of the two, so if you offer $520,000 for a home appraised at $500,000, your LTV is calculated against $500,000.

LTV Calculation Examples

Home: $500,000 | Down: $100,000 | Loan: $400,000

LTV = $400,000 ÷ $500,000 = 80.0% — No PMI

Home: $400,000 | Down: $40,000 (10%) | Loan: $360,000

LTV = $360,000 ÷ $400,000 = 90.0% — PMI required

After 5 years: Loan balance $320,000 | Home value $450,000

LTV = $320,000 ÷ $450,000 = 71.1% — PMI eligible for removal

PMI Removal: Getting Rid of the Hidden Cost

Under the Homeowners Protection Act (1998), PMI must be automatically canceled when your loan balance reaches 78% of the original purchase price — not the appraised value or current market value. You can proactively request cancellation at 80% LTV based on original value, and you may be able to get a new appraisal if home values have risen significantly.

Auto Cancellation

78%

LTV based on original value

Happens automatically

Request Cancellation

80%

LTV based on original value

Must request in writing

Via New Appraisal

80%

LTV based on current value

If home appreciated significantly

Calculate Your LTV

Mortgage & LTV Calculator

Calculate your current loan-to-value ratio, estimate when PMI can be removed, and see how home appreciation affects your LTV and refinancing options.

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