LTV (Loan-to-Value)

LTV: Loan-to-Value ratio

LTV (Loan-to-Value) is the ratio between the loan amount and the appraised property value: LTV = loan / property value · 100%. Take a US$ 500k home carrying a US$ 400k mortgage, and the LTV is 80%. A higher LTV means more risk for the lender, and that usually shows up as a higher interest rate. In the US, conventional loans above 80% LTV typically require PMI (Private Mortgage Insurance). You rarely see LTV near 100%, and when you do it's through government-backed programs like FHA or VA loans.

Brazilian context

In Brazil, the SFH (Sistema Financeiro da Habitação) holds LTV to 80% at Caixa Econômica Federal on most residential mortgages. Go through the SFI (Sistema Financeiro Imobiliário) and you can reach 90%, but you'll pay higher rates for it. On top of that, banks fold a MIP (Mortgage Insurance Premium) into the installment.

FAQ

Why does LTV affect my interest rate? A lower LTV means the buyer holds more equity in the property, so the lender loses less if foreclosure happens. Banks pay that back with lower rates.

What's a safe LTV? Anything under 80% sits in the conventional comfort zone, with no PMI in the US and better rates in Brazil. Get below 60% and the lowest rates open up.

Does LTV change over time? It does. As you pay down the loan and the property gains value, the effective LTV falls, and sometimes it falls far enough to let you refinance and drop PMI.