Loan-To-Value Ratio (LTV)

Loan-to-value (LTV) definition: An LTV indicates the percentage of the property's value that is mortgaged.

To calculate the LTV, divide the appraised value of a property by the mortgage amount:

Example:
$400,000 appraised value

$260,000 mortgage

$260,000 / $400,000 = .65 or 65% LTV

Difference of high LTV and low LTV:
The LTV ratio is used during the loan approval period to gauge risk: the higher the LTV ratio, the higher the interest rate, and vice versa. An LTV of 80% is usually the cutoff of what is considered a high LTV (above 80%) and a low LTV (below 80%).

Before the mortgage crisis, lenders were sometimes granting high LTV loans that were worth 125% of equity (borrowing more than your home is worth), but these are high-risk loans and are difficult to find in stressed markets. 

Low LTV ratios (below 80%) usually mean borrowers are a lower risk and as a result, get loans with lower rates.