If you’re in the market for a new mortgage in Canada, there’s one essential tool that can help make sure you get the best deal on your loan: the Loan-to-Value Calculator! This invaluable tool takes all of the guesswork out of figuring out how much your loan will be.
With this calculator, you’ll know exactly how much you should be able to request and be able to find a lender who’s willing to give it. And knowing this number is a huge component when it comes to mortgage underwriting.
Additionally, since some banks are more likely than others to offer different rates based on their assessment of your credit risk level, it’s important to use this powerful resource so you receive the best offer from potential lenders while avoiding surprises down the line.
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Your Loan-to-Value Results
What Does Loan-To-Value Mean?
Loan to value (LTV for short) put simply is the ratio of the loan amount to the value of the property. It’s an important concept for anyone looking to take out a loan secured by property, such as a mortgage.
So how do you calculate LTV, other than using this handy tool? It’s your mortgage amount divided by your appraised property value.
For example, if someone wanted to borrow $100,000 secured against a house worth $200,000, their loan-to-value ratio would be 50%. In other words, they have put up 50% in equity and are borrowing the remaining 50%.
Generally speaking, mortgage lenders require a higher loan-to-value when granting loans on more expensive properties to reduce their exposure should they ever need to repossess it. Knowing loan-to-value can also help you understand your loan options and requirements when applying for a mortgage.
How Is LTV Used By Lenders?
While this is only one factor most lenders will use to figure out eligibility for conventional mortgages (or home equity lines of credit), it plays a major role in determining the interest rate. If your LTV ratios are at or below 80%, you can usually get a lower interest rate.
A higher loan-to-value ratio doesn’t mean you won’t be approved, though. It just means that the rate offered by financial institutions or mortgage lenders on the mortgage loan will also be higher.
Lenders use LTV to determine the risk associated with a loan. For example, if someone has a low LTV ratio, it may mean they have more equity in the property and are less likely to default on the loan.
Conversely, if someone has a high LTV ratio, it may mean they have less equity in the property and are more likely to default. As such, lenders will often offer different interest rates depending on the LTV ratio of a given loan.
What Does LTV Mean To Me As A Potential Home Buyer?
LTV is a key factor in determining the size of the mortgage you can obtain, the interest rate that will be charged and whether or not you need mortgage insurance.
As mentioned above, lenders prefer you to have more equity in the property so they’re less at risk if something goes wrong. A higher LTV ratio = a lower interest rate, as the lender sees less risk. On the other hand, if you have a lower LTV ratio, it’s likely that the lender will require additional collateral or charge a higher interest rate to protect themselves against any potential default on your loan.
How Does The LTV Ratio Affect Interest Rates?
Your loan-to-value ratio is a key factor in determining your interest rate. Generally speaking, the lower your loan-to-value ratio, the lower your interest rate will be. This is because lenders view borrowers with low loan-to-value ratios as having more equity in the property and therefore being less likely to default on their loans. By contrast, borrowers with high loan-to-value ratios are viewed as being more at risk for defaulting on their loans, and lenders will often charge higher interest rates in order to offset this risk.
It’s also important to note that different types of mortgages may have different loan-to-value requirements and correspondingly different interest rates. Before taking out a loan, it’s important to use this calculator to help you understand and compare rates between lenders so you can make an informed decision and get the best rate available.
What Is A Good LTV Ratio For A Mortgage?
The ideal LTV ratio for a mortgage is typically considered to be around 80%. This means that the borrower has at least 20% of their own money invested in the property. In some cases, you might find lenders willing to lend up to 90 or even 95%, but these mortgages tend to have higher interest rates and fees attached. Ultimately, it depends on your individual financial situation and goals.
Can I Do Anything About My LTV Ratio?
Actually, yes you can! If you can reduce your LTV, it means you’ll have lower total costs over the term of the home loan. However, you have to keep in mind there are only two variables: the mortgage amount (or outstanding mortgage balance) and the appraised value.
- You can make a larger down payment, which means you have more equity in the home. A bonus is that if you get it over 20% you won’t have to purchase mortgage insurance.
- Increase the value of the home. Not an easy one to do, but it is an option.
- Look at a different home. With housing prices and the market as it is right now, getting a home that’s a little smaller or cheaper means your current savings go further.
Using This Calculator
Using our LTV calculator is very straightforward. All you need to do is enter the value of your desired property and the amount of down payment you have. The calculator will then tell you what your loan-to-value ratio is, giving you an idea of whether or not you’ll qualify for a mortgage and whether or not you’ll need mortgage insurance. With this in hand, you can then make informed decisions about the loan amount and interest rate that’s best for you.