The loan-to-value ratio [LTV] shows how much equity you have in your home.
Equity is the difference between how much your home is worth and how much
you owe on it. For instance, if your home is worth $150,000 and you owe
$100,000 on your mortgage, then you have $50,000 worth of equity in your
home. To calculate your LTV, divide your current loan amount by your home’s
value. In this example above, your LTV would be 67%. In the mortgage world,
higher loan-to-value (or lower equity) means there is a greater risk the
borrower may default on the loan. Therefore, in refinancing your home, LTV
is important in determining qualification for home loans and rates. Generally
speaking, the lower your LTV, the lower your rate.