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How loan-to-value ratio works

Loan-to-value is the loan divided by the property value. On a $400,000 home with $20,000 down the loan is $380,000 and LTV is 95 percent. At 80 percent LTV, conventional private mortgage insurance is no longer charged.

Total PMI until 80 percent LTV

$23,560.00

$190.00 a month for 124 months, until the balance falls to 80 percent of the original price.

Loan
$380,000.00
Starting loan-to-value
95.0%
Scheduled principal and interest
$2,401.86
Monthly PMI
$190.00
Months of PMI
124
Total PMI
$23,560.00
$
$

PMI typically applies when this is under 20 percent of the price.

%
yr
%

Charged on the original loan amount until the balance falls to 80 percent of the original price.

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In short

  • LTV is loan over value. On a $400,000 home with $20,000 down the loan is $380,000 and starting LTV is 95 percent.
  • A 10 percent down payment on a $350,000 home is a $315,000 loan and a 90 percent LTV.
  • At 20 percent down on the $400,000 home the loan is $320,000, LTV is 80 percent, and months of PMI is 0.
  • Conventional PMI in the United States is typically charged until the amortised balance hits 80 percent of original price. That is an LTV clock, not a rate sticker.
  • How PMI works is the insurance rider. This page is the ratio that turns it on and off.

Loan over value, not payment over income

Loan-to-value is one division:

LTV=loanvalue\text{LTV} = \frac{\text{loan}}{\text{value}}

On a $400,000 home with $20,000 down the loan is $380,000 and LTV is 95 percent. The ratio asks how much of the property is borrowed, not whether the payment fits inside pay. That second question is how debt-to-income works.

Value on day one is the purchase price. Later it can be an appraised current value, which is a different denominator and a different LTV. The conventional PMI clock on this site uses original purchase price, so a rising market does not, by itself, cancel the rider in the formula.

The PMI calculator on this page returns starting LTV alongside the monthly rider, because the two are the same identity read two ways: the ratio, and the insurance that ratio triggers. Principal is the loan being divided. Collateral is the property in the denominator.

80 percent is a switch, not a rounding

Under US rules a borrower can usually ask for conventional PMI to cancel once the amortised balance hits 80 percent of original price. At 20 percent down, LTV is already 80 percent on day one, so months of PMI is 0 and total PMI is $0.

That is why 19 percent down and 20 percent down are not almost the same product. One of them has a monthly rider for years. The other does not. On the $400,000 sheet, 5 percent down is 95 percent LTV and $190 a month for 124 months, $23,560 in total, on top of a $2,401.86 principal-and-interest payment.

A 10 percent down payment on a $350,000 home is 90 percent LTV, $131.25 a month for 89 months, $11,681.25 in total. The wait is shorter because the starting gap down to 80 percent is smaller, not because 90 percent is a different kind of ratio.

The balance has to fall. The price in this formula does not.

PMI on this page is charged on the original loan until the amortised balance, not the original LTV, hits 80 percent of original price. Extra principal shortens that wait, because the balance gets there sooner. This page assumes the scheduled payment only, so the month count is the slowest usual path. The mortgage payoff calculator is the extra-principal clock.

A current-value appraisal can, in some cases, cancel PMI against 80 percent of today's value rather than original price. That is a request to the servicer, not an automatic identity, and it is not what this formula does. A falling market does the opposite: original-price LTV can sit above 80 percent even after years of payments if you revalue the house.

LTV is not DTI, and it is not the payment

A smaller down payment raises LTV and, on a conventional loan, turns PMI on. It also raises the loan, which raises the principal-and-interest payment. Those are two consequences of one smaller cash cheque, and they are easy to mash into one number.

Folding the PMI rate into the loan rate and amortising it for 30 years describes a different loan, one whose extra charge lasts the whole term instead of stopping at 80 percent LTV. How PMI works is that rider in full. This page is the ratio that decides whether the rider is on.

How mortgages work is the surrounding machinery: the lien, escrow, the payment. How mortgage affordability works is how large a loan a DTI rule will permit, which is a different ceiling from LTV.

Other products use other thresholds

FHA mortgage insurance is a different product with an upfront premium and, for many loans, an annual premium that does not cancel at 80 percent LTV. Do not run an FHA loan through this calculator and call it conventional PMI.

Investment property, second homes and some jumbo loans use different LTV caps again. The identity is always loan over value. The cap that turns a product on or off is a rule, not a formula, and it is written into that product.

A home-equity loan or a cash-out refinance is a new loan against the same denominator, so combined LTV can sit above the first-mortgage LTV. This page is the first-mortgage ratio on purchase.

What this page is not doing

It is not an FHA engine, not a current-value appraisal, and not a DTI test. The three sheets are 95 percent LTV on a $400,000 home ($380,000 loan, $190 a month of PMI for 124 months), 90 percent LTV on a $350,000 home ($315,000 loan, $131.25 for 89 months), and 80 percent LTV on the first home ($320,000 loan, months of PMI 0). This is educational material, not financial advice.

Worked examples

5 percent down on a \$400,000 home

Home $400,000, down payment $20,000, rate 6.5 percent, 30 years, PMI 0.60 percent of the original loan. Monthly PMI, months of PMI, total PMI?

  1. Loan: 400000−20000=380000400000 - 20000 = 380000, so $380,000. Starting LTV: 95 percent.
  2. Monthly PMI: 380000×0.006/12=190380000 \times 0.006 / 12 = 190, so $190.
  3. Scheduled principal and interest: $2,401.86.
  4. The balance reaches 80 percent of $400,000, which is $320,000, in month 124. Total PMI: 124×190=23560124 \times 190 = 23560.

Monthly PMI is $190 for 124 months, $23,560 in total, on a $380,000 loan whose scheduled payment is $2,401.86. Starting loan-to-value is 95 percent.

10 percent down on a \$350,000 home

Home $350,000, down $35,000, rate 6 percent, 30 years, PMI 0.50 percent. Totals?

  1. Loan: 350000−35000=315000350000 - 35000 = 315000, so $315,000. Starting LTV: 90 percent.
  2. Monthly PMI: 315000×0.005/12=131.25315000 \times 0.005 / 12 = 131.25.
  3. Scheduled payment: $1,888.58. Months of PMI: 89. Total: 89×131.25=11681.2589 \times 131.25 = 11681.25.

Monthly PMI is $131.25 for 89 months, $11,681.25 in total, on a $315,000 loan. Starting loan-to-value is 90 percent. The scheduled payment is $1,888.58.

20 percent down, no PMI

Home $400,000, down $80,000, same 6.5 percent 30-year loan, PMI rate 0.60 percent. How many months of PMI?

  1. Loan: 400000−80000=320000400000 - 80000 = 320000, so $320,000. Starting LTV: 80 percent.
  2. The balance is already at the 80 percent threshold, so months of PMI is 0 and total PMI is $0.
  3. Monthly PMI would have been 320000×0.006/12=160320000 \times 0.006 / 12 = 160, but it is never charged. Scheduled payment is the principal-and-interest on $320,000.

Months of PMI is 0 and total PMI is $0, because a $320,000 loan on a $400,000 home is already 80 percent LTV. The scheduled payment is still computed; the insurance rider is not.

Common questions

Is LTV the same as a down payment?

They add to 100 percent on day one: 5 percent down is 95 percent LTV. After that they part. The down payment is cash at closing. LTV is the loan over value as the balance falls, and later as the value is reappraised.

Does a rising house price cut LTV?

On a current-value reading, yes. On the original-price PMI clock this page uses, no. Cancellation against original price waits for the amortised balance, not for the market.

Why is 80 percent the number people quote?

Because that is the conventional PMI cancellation point against original purchase price under US rules. It is a product switch, not a law of lending. Other products use other thresholds.

Keep reading

This page is educational material, not financial advice. The figures come from the formula shown and assume the inputs you enter hold for the whole term. Your own rate, fees, taxes and timing will differ, so treat the output as arithmetic to check a decision against, not as a recommendation.