Loan to Value

Loan-to-value ratio (LTV Ratio) is the amount of a loan or mortgage when compared to the value of a property.  This financial ratio is a calculation made by a financial institution or lender prior to providing a mortgage to a borrower.  This LTV ratio helps lenders determine whether a borrower qualifies for a mortgage or not.  In addition, the loan-to-value ratio calculation determines whether a mortgage will be a conventional mortgage or non-conventional high ratio mortgage.

For many Canadians, the most difficult part in buying a home is saving up for the necessary down payment.  With a minimum down payment in Canada of 5% needed, representing a loan-to-value ratio of 95%, mortgage default insurance is required for many borrowers.

High-ratio mortgages with loan-to-value ratios in excess of 80% are considered risker loans for many financial institutions, and in some cases have slightly higher associated mortgage lending rates.  However, as a result of high loan-to-value mortgages having mortgage default insurance, which is paid for by the borrower, many lenders have eliminated the risk of holding these loans and offer slightly better mortgage interest rates. 

The maximum LTV in Canada is 95%, as the minimum down payment is 5%.

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April 27, 2017

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