The Loan-to-Value (LTV) ratio is a key metric used by lenders to assess the risk of lending money for real estate purchases.
LTV Ratio = (Loan Amount / Appraised Property Value) × 100. It compares the loan amount to the appraised value of the property.
Understanding your LTV ratio is crucial because it affects loan approval, interest rates, and the need for private mortgage insurance (PMI).
- Loan Amount: The amount you are borrowing.
- Appraised Value: The current market value of the property.
- Pros: Lower LTV ratios can secure better loan terms and reduce overall costs.
- Cons: Higher LTV ratios might limit your loan options and increase borrowing costs.
If you want to buy a property worth $200,000 with a loan of $150,000, your LTV ratio would be (150,000 / 200,000) × 100 = 75%.Fixed-rate mortgages are popular when interest rates are low and expected to rise in the future.
Aim for an LTV ratio of 80% or lower to avoid PMI. Use Rentastic's property feature to track your LTV and monitor your investment's health.
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