One ratio decides whether you're paying PMIInsurance that protects the lender, paid by you, often until you have about 20% equity.Click to open the full glossary., whether you can refinanceReplacing your loan with a new one, often to get better terms.Click to open the full glossary. without extra insurance, and how much equityThe share of your home you own outright.Click to open the full glossary. you actually have. It's simpler to calculate than most homeowners think.
The formula
If you owe $304,000 on a home worth $380,000, your LTV is 304,000 ÷ 380,000 = 80%. The lower your LTV, the more equity you have, and the less risk a lender is taking on.
Two ways your LTV improves
- Amortization (paying down principal). Each payment cuts what you owe a little. Paying more cuts it faster. That drops the top half of the sum.
- Appreciation (rising home value). If your home goes up in worth, you own more of it. That is true even if you owe the same. It lifts the bottom half of the sum, which drops the result.
In a strong market both can help. But rising value only helps you drop PMI if your servicer agrees to use it.
Your 80% by-request right to ask runs off what you paid for the home. If your home has gone up, your servicer may agree to use what it is worth now. You would pay for a new appraisal. Rules vary, and many want 75% or less on a newer loan. Your 78% automatic stop date works the other way. It runs off what the home was worth then, and off your first plan. What it is worth today does not count.
Why lenders care so much about this one number
This one number tells a lender a lot about risk. Hold 20% equity and you have real skin in the game. Walking away would cost you. Own almost none and you have far less to lose. That is the whole point of PMI. It covers the lender while you owe more than 80%. And for most loans, the law says it must end once that risk falls far enough and your payments are current.
"LTV is one of the strongest signs of default risk. That is why PMI cancellation hinges on it."
How to estimate your current LTV yourself
- Find your current balance. It's on your latest mortgage statement.
- Estimate your home's current value. Look at what comparable homes near you sold for. A free online estimate is a starting point. But if you want PMI canceled because your home has gone up in value, your servicer will want a formal appraisal.
- Divide balance by value. Times it by 100 for a percent. Used the price you paid? Then 80 or less means you can likely ask to cancel PMI. Used today's value? Your servicer's rules apply, and many want 75 or less on a newer loan.
Our free PMI drop-date calculator estimates where you stand now. It maps both dates from the numbers you enter.
Doing this by hand means finding your statement and redoing the math every few months. Your free dashboard does it for you, from the numbers you enter.
Know your LTV without doing the math
Your free dashboard tracks your LTV as your balance falls. With Pro, we email you as you near 80%, and again when you get there.
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