So, you’re thinking about refinancing your mortgage? Perhaps you want to take out cash to pay for medical expenses, college tuition, or home improvements. Or maybe you’re looking to take advantage of a lower interest rate or shorter loan term. Whatever your reasons may be, if you plan on refinancing, it’s important to be aware of your LTV, or Loan to Value ratio. This key figure has a major impact on your refi loan application and can also affect your new loan terms. Below, we’ve discussed the matter in detail.
What Does LTV Mean?
LTV is an acronym for the phrase “Loan to Value”. An LTV ratio is a figure that represents the amount owed on a mortgage versus the value of the property. As you make payments on your mortgage, your LTV ratio goes down.
Knowing your LTV ratio is important because it helps you understand how much equity you have, or how much of your home you own. Generally speaking, the lower your LTV ratio, the better.
How Does LTV Affect Refinancing?
Your LTV is an important figure that lenders look at when you apply for a refi loan. If you have a lower LTV, you are considered less of a risk and your lender is more likely to agree to your request to refinance. Your level of risk is also used to determine your mortgage rate.
What Is a Good LTV for Refinancing?
In general, most experts recommend having an LTV of 80% or lower before applying for a refi loan. If you have an LTV higher than 80%, you’ll have to pay for PMI, Private Mortgage Insurance.
That being said, sometimes lenders are willing to make exceptions. Additionally, you may be able to have a higher LTV if you refinance into a government-backed mortgage, since these are considered less of a risk to the lender.
How to Calculate Your LTV
Calculating your LTV is fairly straightforward. All you have to do is take your current loan balance and divide it by your home’s appraisal value. You should be able to find your loan balance on your mortgage statements or get the information directly from your lender. Once you perform this calculation, you should end up with a fraction or decimal. This figure represents your LTV.
Ready to Refinance?
Get started with the process today. Call Mortgage Solutions Financial to speak to an expert and begin your refi loan application. We look forward to hearing from you soon!