What is Loan to Value Ratio (LTV)
Loan to Value Ratio (LTV) is a metric that is used to measure risk in lending transactions, including private mortgage transactions.
The LTV tells you how much of the secured asset is encumbered by the current loan and the loans that have priority to it.
Formula
LTV is calculated as follows:
(Loan Amount + Total Outstanding Under Loans with Priority to Subject Loan) ⁄ Property Value
Example
As an example, in a 2nd mortgage private mortgage transaction with a loan amount of $100,000, when the value of the property is $1,000,000 and the balance outstanding on the first mortgage is $700,000, the LTV from the perspective of the first mortgagee is 70% and the LTV from the perspective o the second mortgagee is 80%.
($100,000 + $700,000) ⁄ $800,000
How does Nojumi Calculate LTV?
Nojumi calculates the LTV by using the information in the Closing Form and entering them in the LTV Formula.
Desired LTV
The Desired LTV is the LTV that is entered in the Commitment Letter as a condition that needs to be met for the transaction to proceed.
Nojumi calculates the Desired LTV as follows:
(Loan Amount + Total Maximum Permitted Balance Under Loans with Priority to Subject Loan) ⁄ Minimum Required Value for the Property
At the time of preparation of the Commitment Letter, usually, the lender has not yet verified the actual value of the property or the balance outstanding under the prior mortgages and as such is not yet in a position to calculate the Actual LTV.
Actual LTV
After the Commitment Letter is signed, as part of the closing process, the Lender should complete its due diligence including determining the value of the Property (often through an appraisal) and determining the balance outstanding under the prior mortgages.
Nojumi calculates the Actual LTV as follows:
(Loan Amount + Total Actual Balance Under Loans with Priority to Subject Loan) ⁄ Actual Value of the Property
LTV Table
The LTV Table is displayed at the top of the Loan Terms tab of the Private Mortgage Closing Form.
The LTV Table displays the Desired LTV and the Actual LTV for every Property.
If you have more than one Property, in addition to displaying the Desired LTV and the Actual LTV for every Property, Nojumi will also display the combined LTV. Nojumi calculates the combined LTV as follows:
(Loan Amount + Total Outstanding Under Loans with Priority to Subject Loan on all Properties) ⁄ Sum of all Property Values
If any of the information required for the calculation of LTV is missing, it will be displayed in form an error message under the LTV table.
Required Closing Form Fields to Calculate LTV
To ensure LTV is correctly calculated, you should enter values for the following fields on the Closing Form:
