Loan to value is about what amount of mortgage you have in context to what is the real worth of your property. It is normally expressed as a percentage or ratio which reflects the ratio of your mortgaged property to the amount which you own (equity).
For instance: if you have a house whose worth is $2,00,000 and a mortgage of $15,00,000 then your loan to value is 75% and hence you have $50,000 as equity amount.
You consider loan to value when you buy or sell your property, mortgage or remortgage it. You mortgage balance decreases when you repay it and balance remains constant all through the term.
You can calculate your Loan to Value Ratio by dividing the left balance of the outstanding mortgage by the assessed value of your house. The more equity you have with you, the lower will be your Loan to Value Ratio. The lower the Loan to Value is the better the rate of mortgage interest will be. It will eventually save your money and help with a lower mortgage payment.
The Loan to Value allows the lenders to appraise risk present on the loan. The Loan to value can also be lowered when the lender feels that investing in the property is risky or it wouldn’t yield good return. With a high Loan to Value Ratio, you need to give more for your mortgage loan. This more risk of the lender is passed you in the form of higher rate of interest or lender charges.