19 February 2026

When buying a property, attention is often focused on the purchase price and the mortgage interest rate. However, one financial indicator plays a central role in loan approval and its conditions: the loan-to-value ratio, also known as LTV (Loan-to-Value). This simple calculation directly influences the level of risk perceived by the lender.

In Quebec, as elsewhere in Canada, financial institutions systematically evaluate this ratio before granting mortgage financing. It notably determines whether mortgage loan insurance is required and can affect the terms of the loan.

In this article, we will clearly explain what the loan-to-value ratio is, how it is calculated, why it is decisive, and how to optimize it to strengthen your position as a borrower.

Clear Definition of the Loan-to-Value (LTV) Ratio

The loan-to-value ratio represents the percentage of the purchase price financed through borrowing. It is calculated by dividing the mortgage loan amount by the value of the property, then multiplying the result by 100.

Basic Formula

Loan-to-Value (LTV) Ratio = (Loan Amount ÷ Property Value) × 100

For example, if you purchase a home valued at $400,000 and borrow $320,000, the calculation is as follows:

320,000 ÷ 400,000 = 0.80
0.80 × 100 = 80%

Your loan-to-value ratio is therefore 80%.

This percentage indicates that you are financing 80% of the property through borrowing and holding 20% as a down payment.

Why Do Lenders Place So Much Importance on LTV?

The loan-to-value ratio is a risk indicator. The larger the portion of the property financed by the lender, the greater its financial exposure in the event of payment default.

A high ratio means:

• Less equity held by the borrower
• Greater vulnerability if property values decline
• Increased risk for the financial institution

Conversely, a lower ratio shows that the buyer is investing a significant portion of their own funds. This reassures the lender and can facilitate loan approval.

As a result, LTV directly influences the overall assessment of your mortgage application.

The 80% Threshold: A Key Turning Point

In Canada, the 80% threshold is particularly important. When a buyer borrows more than 80% of the property’s value, the loan is generally considered a “high-ratio” mortgage.

In this case:

• Mortgage loan insurance is typically required
• The lender is protected against default risk
• The borrower must meet strict financial criteria

When the ratio is 80% or less, it is generally referred to as a conventional mortgage. This type of financing offers greater flexibility and avoids the requirement for mortgage insurance.

The following table illustrates this distinction:

This distinction can influence your down payment strategy at the time of purchase.

The Impact of the Down Payment on LTV

The down payment is the primary lever for reducing the loan-to-value ratio. The larger it is, the lower the LTV.

Here are some illustrative examples:

• 5% down payment ? 95% LTV
• 10% down payment ? 90% LTV
• 20% down payment ? 80% LTV

Increasing your down payment allows you to:

• Reduce the total amount borrowed
• Improve perceived creditworthiness
• Limit additional requirements

However, it is important to maintain a balance between your down payment and available liquidity. Using all your savings to lower your LTV may weaken your emergency fund.

Structured financial planning remains essential.

The Loan-to-Value Ratio in a Refinancing Scenario

LTV does not apply only at the time of the initial purchase. It also plays a major role during mortgage refinancing.

If your property’s value has increased over time, your ratio may naturally decrease, even if the mortgage balance remains significant.

For example:

• Current value: $500,000
• Mortgage balance: $300,000

300,000 ÷ 500,000 = 60%

A 60% ratio generally offers more flexibility to access accumulated equity.

Here is a comparison table to better understand:

This progression illustrates how the ratio can improve over time.

LTV and Financial Stability

A lower loan-to-value ratio generally means:

• More stable mortgage payments
• Less financial pressure
• Greater capacity to absorb unexpected events

Conversely, a high LTV leaves little margin if market values decline. In an uncertain economic context, this reality can become a significant source of stress.

It is therefore relevant to analyze your risk tolerance before determining your optimal level of debt.

Common Mistakes Related to the Loan-to-Value Ratio

Many buyers focus solely on loan approval without analyzing the implications of LTV.

The most common mistakes include:

• Minimizing the importance of the down payment
• Underestimating the impact of mortgage insurance
• Overlooking potential real estate market fluctuations
• Forgetting that the ratio also affects future refinancing

A thorough understanding of this ratio helps avoid these pitfalls and build a sustainable strategy.

How to Optimize Your Loan-to-Value Ratio

There are several concrete ways to improve your financial position before submitting an offer to purchase.

Effective strategies include:

• Gradually increasing your down payment
• Reducing personal debts before applying for a mortgage
• Stabilizing your income and credit profile
• Avoiding major financial commitments before purchase

These actions strengthen your overall profile and improve the solidity of your application.

A well-prepared file facilitates negotiation and secures your real estate project.

Conclusion: Understanding LTV to Make Better Decisions

The loan-to-value ratio is much more than a simple mathematical calculation. It reflects your level of financial commitment, influences the lender’s risk assessment, and can determine certain mortgage conditions.

By understanding how it works and properly planning your down payment, you increase your chances of obtaining financing suited to your reality while protecting your long-term stability.

As a real estate broker, I guide you through the overall analysis of your purchase project to align your financial objectives with your real estate decisions. If you are considering an acquisition or refinancing, let’s take the time to evaluate together the most coherent strategy for your situation.