What is 10% LTV?

Article Details
  • Written By: N. Madison
  • Edited By: Jenn Walker
  • Last Modified Date: 30 January 2020
  • Copyright Protected:
    Conjecture Corporation
  • Print this Article

Loan to value (LTV) is a ratio of the total amount of a mortgage in comparison to the value of the property for which the loan will apply. 10 LTV means the loan amounts to 10 percent of the value of the property. A 10 LTV loan is often easier to secure than a loan with a higher LTV. This is because lenders accept more risk when they grant high-LTV loans. An individual is likely to have a more difficult time qualifying for an 80-percent LTV loan than he would with a 20-percent LTV loan.

To understand what a 10 LTV is, it may help to consider an example in which a person is purchasing a property with a value of $100,000 US Dollars (USD). If a borrower wanted to obtain a 10 LTV loan on a $100,000 USD property, this would mean he would apply for a $10,000 USD loan. A $10,000 USD loan would be 10 percent of the property's value. Basically, a 10 LTV occurs when a person divides the loan value by the property value or purchase price and the result is 10.


LTV calculations also reveal how much equity a person will have in a property once his purchase is final. Equity is the amount of the property a person owns versus the amount he has financed and plans to eventually own. For example, if a person purchases a property for $80,000 USD with a 10 LTV, this means he has financed $8,000 USD of the property in question. The amount of equity he has in the property, in such a case, is $72,000 USD. As the borrower makes mortgage payments, the amount of equity he has in the property will gradually increase.

Usually, lenders are more careful about granting high-LTV loans when compared to 10 LTV or other low-LTV loans. One reason for this is the idea that a borrower with a high amount of equity in a property is less likely to default on the loan he has secured for it. In such a case, a person may be more committed to a property because he has invested quite a bit of money into owning it. Lenders may also prefer low-LTV loans because they will have an easier time recouping their money in the event of a default. Interestingly, lenders are sometimes willing to grant 100-percent loans, which means the loan equals 100 percent of the property’s value, but these loans typically come with very high interest rates.



Discuss this Article

Post your comments

Post Anonymously


forgot password?