A Loan to value ratio or an LTV ratio determines the first mortgage cost with respect to the total appraised value of that particular property. It is a risk factor that is considered by the lenders while trying to determine the interest rate they should charge when they lend someone money for a mortgage. As the valued price of the property dips, there are increased chances that the lender will suffer a loss. As the LTV ratio decreases, the amount of risk associated with approving the mortgage also increases. If a particular borrower has a lower LTV, the lender can protect himself by making the borrower agree to sign a mortgage indemnity guarantee or any other form of mortgage insurance. This will increase the cost of the mortgage in case they decide to merge the payment.

A property appraiser will generally perform the valuation of the property. In case the purchase is a recent one, the bank will consider the lesser value of the purchase and appraised price. A period of one or two years is considered recent. A low LTV ratio of 80 percent implies the higher risks of lending the money to the house owner and vice versa. It is advisable to keep a track of your credit score , as this can also affect the interest rate that you are offered in case you need a mortgage loan.