Loan-to-Value Ratio (LTV)
Loan-to-value ratio is your loan amount divided by the home's value, as a percentage. A $320,000 loan on a $400,000 home is 80% LTV. Lenders watch it closely: a lower LTV means less risk, better rates, and — at 80% or below — no private mortgage insurance.
LTV falls two ways: as you repay principal, and as the home appreciates. The thresholds matter more than the number itself. At 80% you can request that PMI be cancelled; at 78% of the original value the servicer must remove it automatically, provided payments are current. Below 80% is also where the best refinance pricing sits, and it governs how much equity a home equity loan or HELOC will let you draw. One asymmetry catches borrowers out: PMI removal is generally measured against the original purchase price, so appreciation alone may not be enough without paying for a new appraisal — while a refinance is priced on today's value.
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