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How to Calculate Home Equity and Loan-to-Value (LTV)


Apr 30, 2023



Are you considering taking out a home equity loan or refinancing your mortgage? Knowing your home equity and loan-to-value (LTV) ratio can help you make informed decisions about your financial future. With Hitch, you can easily calculate your home equity and LTV in just a few clicks.

Our user-friendly interface makes it simple to input your property value, outstanding mortgage balance, and any additional debts secured by your home. Hitch then calculates your LTV ratio, which is a key factor lenders use to determine your eligibility for a home equity loan or refinance. Additionally, you'll see your home equity, or the amount of your home that you own outright.

Whether you're looking to access your home equity or simply want to stay informed about your financial situation, Hitch can help. Try our home equity and LTV calculator today and take the first step towards achieving your financial goals.

Calculating your loan-to-value ratio

Calculating your loan-to-value (LTV) ratio involves dividing your outstanding mortgage balance by your property's appraised value or purchase price. This ratio is a key factor in determining your eligibility for a home equity loan or refinance. The higher your LTV, the riskier you may appear to lenders, which could impact your interest rates and loan terms. Keeping your LTV low by paying down your mortgage or increasing your home's value can help you secure more favorable loan options in the future.

Expressing the amount you owe on your current mortgage, the loan-to-value ratio (LTV) can be calculated using a basic formula, which is:

LTV Ratio = (Mortgage Amount / Appraised Property Value) x 100%

For example, if your mortgage amount is $150,000 and your property is appraised at $200,000, your LTV ratio would be:

LTV Ratio = ($150,000 / $200,000) x 100% = 75%

Your LTV ratio is an important factor in determining your eligibility for certain types of loans and can impact your interest rates and loan terms.

Combined loan-to-value ratio (CLTV) for more than one loan

Combined Loan-to-Value Ratio (CLTV) is a financial term used to express the total amount of outstanding loans compared to the value of the underlying asset, usually a property. When a property has more than one loan, the CLTV takes into account the total outstanding balance of all loans and compares it to the property's value.

To calculate the CLTV for a property with multiple loans, you first need to determine the total amount of outstanding balances on all loans. Then, you need to determine the value of the property. Finally, you can calculate the CLTV by dividing the total outstanding loan balances by the property's value.

For example, suppose a property is worth $500,000 and has two outstanding loans with balances of $100,000 and $50,000. The total outstanding loan balance would be $150,000 ($100,000 + $50,000). To calculate the CLTV, you would divide the total outstanding loan balance by the property's value:

CLTV = (Total Outstanding Loan Balances / Property Value) x 100% CLTV = ($150,000 / $500,000) x 100% CLTV = 30%

In this example, the CLTV is 30%, indicating that the total outstanding loans on the property represent 30% of its total value. It's important to note that the CLTV is a useful metric for lenders to evaluate the risk of lending on a property with multiple loans, as it provides insight into the borrower's ability to manage multiple loans and maintain the property's value.

The appraisal

To determine your loan-to-value ratio, obtaining a professional appraisal is crucial. If an on-site appraisal is required, a certified appraiser will be arranged by your lender to visit your home and assess its value.

What are some ways to influence your LTV?
  • Increasing your down payment: A higher down payment reduces the amount of the loan, which in turn lowers the LTV.

  • Paying off existing debts: By reducing your outstanding debts, you can increase the equity in your property, which decreases the LTV.

  • Renegotiating the terms of your loan: Refinancing your loan to a lower interest rate or a longer repayment term can decrease the monthly payments, making it easier to pay off the loan and improve the LTV.

  • Making home improvements: Enhancing your property's value through home improvements, such as renovations or upgrades, can increase the property's appraised value, resulting in a lower LTV.

  • Choosing a lower-priced property: Opting for a more affordable property reduces the amount of the loan and, in turn, lowers the LTV.

These are just a few ways to influence your LTV. It's important to note that a lower LTV often results in a more favorable loan terms and better interest rates.

Learn more and apply with Hitch today!

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Hitch, Inc. NMLS #2383367 #2383367

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1. Qualified applicants may borrow up to 95% of their home’s value. This does not apply to investment properties.

2. HELOCs have a 10-year draw period. During the draw period, the borrower is required to make monthly minimum payments, which will equal the greater of (a) $100; or (b) the total of all accrued finance charges and other charges for the monthly billing cycle. During the draw period, the monthly minimum payments may not reduce the outstanding principal balance. During the repayment period, the borrower is required to make monthly minimum payments, which will equal the greater of (a) $100; or (b) 1/240th of the outstanding balance at the end of the draw period, plus all accrued finance charges and other fees, charges, and costs.The lender will calculate this amount by taking the outstanding Account Balance on the last day of the draw period and dividing it by 240 months and then adding any finance charge that accrues but remains unpaid during the monthly billing cycle plus any other fees, charges and costs to the fixed principal payment that is due. During the repayment period, the monthly minimum payments may not, to the extent permitted by law, fully repay the principal balance outstanding on the HELOC. At the end of the repayment period, the borrower must pay any remaining outstanding balance in one full payment.

3. The time it takes to get cash is measured from the time the Lending Partner receives all documents requested from the applicant and assumes the applicant’s stated income, property and title information provided in the loan application matches the requested documents and any supporting information. Most borrowers get their cash on average in 21 days. The time period calculation to get cash is based on the first 4 months of 2024 loan funding's, assumes the funds are wired, excludes weekends, and excludes the government-mandated disclosure waiting period. The amount of time it takes to get cash will vary depending on the applicant’s respective financial circumstances and the Lending Partner’s current volume of applications. Closing costs can vary from 3.0 - 5.0%. An appraisal may be required to be completed on the property in some instances.

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