Loan-to-Value Ratio

^{Advantage Software LLC}	Real Estate Investment Analysis Software
	Loan-to-Value Ratio / LTV Ratio

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Loan-to-Value Ratio or LTV

The loan-to-value ratio or LTV ratio is calculated by dividing the loan balance of a property by the market value and is expressed as a percentage. For example, a property with a loan balance of $400,000 and a market value of $500,000 has a Loan-to-Value Ratio of 80%.

Balance of Loans $400,000

LTV Ratio = ----------------------- X 100 = ------------- X 100 = 80%

Market Value $500,000

The Loan-to-Value Ratio can be used to estimate the amount of equity you have in a property. If the LTV ratio for a property is 75%, your equity position in a property is 100 minus 75 or 25%. You can then multiply .25 times the market value to determine the equity amount.

Lenders may require mortgage insurance on loans with a loan-to-value ratio greater than a predetermined amount, usually 80%. This means that the purchaser of a property will need to put a minimum of 20% down to avoid paying mortgage insurance premiums. Mortgage insurance is a premium amount which is added to the monthly mortgage payment. The purpose of mortgage insurance is to protect the lender if the buyer defaults.

The Loan-to-Value Ratio is also used when an investor wishes to refinance a property. For example, you have owned an investment property for a number of years and you would like to refinance the property to take cash out. Most lenders will allow a maximum of 75% the appraised value or a 75% LTV ratio for the new loan amount. Lenders who refinance at loan-to-value ratios greater than 75% will usually charge less favorable interest rates.

The lower the loan-to-value ratio, the greater the property owner's equity and the less likely they are to default on the loan. A lower loan to value ratio translates into less risk for the lender.

The loan-to-value ratio is just one of many important real estate ratios calculated by the On Target real estate investment software. On Target provides extensive income property analysis and can help you quickly size-up an income property. An Executive Summary is provided which includes all of the most important information from other On Target reports so that you can quickly compare multiple income properties. Just run the data for each income property you are analyzing, print the executive summary for each property, and compare the returns to see which property generates the greatest return. If you are interested in purchasing On Target for just $97.95, click on Purchase Software To learn more about this powerful analysis tool, check it out here. Software Features The On Target real estate investment software includes a 30 day money back guarantee and free support.