Loan-to-value, or LTV, is the balance still owed on your note divided by what the property is worth today, written as a percentage. The lower the figure, the more of the property’s value sits behind the debt, and buyers pay more for a note with that protection.
Working it out
- Find the balance still owed. This is the unpaid principal, which is smaller than the total of the payments left because those payments include interest.
- Divide it by the current value of the property that secures the note.
- Multiply by 100.
As an example with round figures, a $90,000 balance on a property worth $150,000 is an LTV of 60%. The other $60,000 is the payer’s equity, meaning the part of the property’s value left over once the debt is taken away. If the balance equalled the value, LTV would be 100% and there would be no equity at all.
What the figure tells a buyer
A note buyer pays for a stream of payments and relies on the property only if those payments stop. LTV describes how good that fallback is. A payer with a large share of equity has a strong reason to keep paying, or to sell the property and pay the note off, because walking away would mean giving that equity up. And if the buyer ever did have to take the property back, the legal costs, the months without income and a sale under pressure would all come out of the equity before they touched the buyer’s own money.
With less cushion, a buyer asks for a higher yield, which is the annual return they need on the money they put in. Since the payments are fixed, the only way to earn a higher return on them is to pay less for the note.
How LTV differs from investment-to-value
Buyers also talk about ITV, or investment-to-value. The bottom of the fraction is the same property value. The top is the price the buyer pays for the note, in place of the balance owed.
| Measure | Top of the fraction | Whose risk it describes |
|---|---|---|
| Loan-to-value (LTV) | Balance owed on the note | The payer’s stake in the property |
| Investment-to-value (ITV) | Price the buyer pays for the note | The buyer’s money at risk |
Notes sell at a discount, meaning for less than the balance owed, so ITV comes out lower than LTV on the same note. On the example note used across this site, the balance is about $129,400 and a full sale prices at $115,000. LTV would be worked from the first figure and the buyer’s ITV from the second.
Illustrative example, using an 8% buyer yield on a note written at 6%. No property value is assumed here, and an offer on your note would rest on its own facts.
LTV is the quick screen a buyer applies before pricing, and ITV limits what they will pay once they do. The page on investment-to-value takes the buyer’s side of this further, and equity and investment-to-value explained covers both measures at length.
What moves your LTV
The down payment sets it on day one, which is why the down payment matters when you sell. After that, each payment trims the balance, so LTV drifts down over the life of the note. On an amortizing note the drift is slow at first, because the early payments carry more interest and less principal.
Property value works on the other half of the fraction. If the property has gained value since you sold it, LTV has fallen without anyone doing anything, and if the area or the building’s condition has slipped, it has risen.
Other debts count too. On a second lien, a buyer adds the balance of the loan ahead of yours to get a combined LTV, and unpaid property taxes reduce the cushion in the same way.
Whose value counts
The price you sold the property for years ago is only a starting point. Before funding, a buyer gets an independent opinion of current value, for example from a local agent or an appraiser, and the offer follows that figure, which is why a property valuation matters when you sell a note. A recent appraisal, a tax assessment or sales of similar property nearby are worth including when you send us the note to price, since they give the buyer’s valuer something to work from.
Estimate yours before you ask for offers
Take the current balance from your payment records or servicer statement and divide it by an honest estimate of what the property would sell for today. The answer will be rough, and LTV is only one of the factors that decide what your note is worth, but it tells you whether equity is a strength of your note or a point a buyer will press on.
If the figure comes out high, check the value before you check anything else. The balance is a matter of record, so the property value is the half of the fraction where better evidence can change the answer.
Related questions
Is a lower loan-to-value always better when I sell?
For price, yes. A lower LTV means more equity behind the note, so a buyer sees less risk and can accept a lower yield. It does not fix other problems, such as missed payments or weak paperwork.
Can I use the original sale price to work out LTV?
It gives you a rough figure, but a buyer will use what the property is worth now. Values move over the years, and so does the property's condition, which is why the buyer gets a fresh opinion of value before funding.
Does LTV change over the life of the note?
Yes. It falls as the payer pays down the balance, and it moves in either direction as the property's value changes. A note that started with thin equity can look much stronger several years in.