A loan to value (or LTV) refers to the amount of money you are borrowing for to buy a home in relation to the value of that home
All LTVs are expressed as a percentage and is calculated by dividing the sum being borrowed by the property’s value and then multiplying that figure by 100. Let’s take a simple example to show how an LTV would be calculated. Person A is a first time buyer who wants to buy a home valued €150,000. He has built up savings and only needs a loan amount of €120,000.
This means the loan to value on Person A’s mortgage would be 80% as shown below:
The LTV is an important metric when it comes to mortgage lending it plays a role in the limit that can be lent to a borrower. The majority of lenders will only allow borrowers draw down a maximum of 90% LTV (that is 90% of the property’s value) with the remaining 10% given up front as a deposit. Most lenders also offer reduced variable interest rates to those who take out mortgages with lower LTVs. For example, KBC Bank has an interest rate of just 3.85% for customers who borrow at an LTV of under 60%1.
1Information correct as of the 9th September 2013