Understanding the 80% Loan-to-Value Limit

The definition

Loan-to-value, or LTV, is the total amount secured against a property divided by that property's lending value, expressed as a percentage. A home valued at $900,000 with $540,000 secured against it sits at 60% LTV.

It measures the lender's exposure relative to the asset. The lower the ratio, the more cushion exists between the debt and the value.

Why 80% comes up so often

In Canada, mortgage financing above a certain loan-to-value threshold generally requires mortgage default insurance, and that insurance is not available for every purpose. Refinancing to access equity is one of the purposes it does not cover. The practical consequence is that equity takeouts are typically discussed against an 80% reference.

Purchases work differently. A purchase can be financed above 80% where the transaction is eligible for default insurance, subject to CMHC's general qualification requirements and to the down-payment rules described by the FCAC on its down payment page.

Working the calculation

1. 01Add every balance secured against the property, including second mortgages and registered credit lines.
2. 02Divide that total by the property's value.
3. 03Multiply by 100 for the percentage.

To find the theoretical room at an 80% reference, take 80% of the value and subtract the secured balances. The home equity calculator does both calculations at once.

Value is a lender determination

The most common source of a gap between a homeowner's estimate and a lender's is the value itself. A lender relies on its own valuation process, which can produce a figure above or below an online estimate or a recent neighbouring sale. Property type, condition and location all feed into it.

80% is a reference, not a right

Sitting below 80% does not mean financing is available. It means one of several tests may be satisfied. Income, credit, debt servicing, property characteristics and individual lender policy all still apply, and some lenders apply lower internal limits for particular property types or locations.

Why it is still worth calculating

Knowing your approximate LTV tells you quickly whether a conversation about accessing equity is realistic today, or whether it is a conversation for a later point. That alone saves a lot of time.