Loan-to-Value Ratio

There are many reasons that your LTV matters when you are getting a mortgage. Your down payment will impact the LTV, as well as our decision to approve your mortgage. If your down payment is under 20 percent and this causes the LTV to be higher than 80 percent, for example, we will usually require private mortgage insurance (PMI) if you are not getting a government-insured loan. Mortgage insurance is an additional cost you will pay, and it will be added to your monthly payment. It can be anywhere from 0.22 to 1 percent of your loan amount charged annually.

If you are required to pay PMI, it can be removed from your loan once you hit 80 percent LTV. This can happen if your home's value increases enough, you pay down the loan earlier than expected, or you make monthly mortgage payments until you pay off the loan enough to reach this level.

Your LTV will also matter if you ever decide to refinance. When you refinance your loan, the appraised value will be used based on comparable home sales over the last three months. The LTV increases the interest rate you pay on your refinance, as homeowners who have less of their own money in the home are viewed as a higher risk. If the LTV is more than 70 percent, you can expect around a 0.125 percent increase in the interest rate for every 5 percent increase.