Episode 3: Stay sharp on your loan-to-value ratio
Your mortgage advisor likely emphasized the importance of the loan-to-value (LTV) ratio when buying a home. But did you also check its influence after you’ve purchased your property? Keeping an eye on your LTV can save you a lot of money in the long run.
On this page
- What is loan-to-value (LTV)?
- How to calculate your loan-to-value ratio
- Why the loan-to-value ratio matters: It's all about risk
- Moving to a better risk class
- Loan-to-value and NHG mortgages
- How a lower loan-to-value affects your monthly costs
- Contact your lender proactively
- Take action: How to assess your home’s value
- Get your home appraised
- Should you make extra repayments?
- Other ways to reduce your interest rate
What is loan-to-value (LTV)?
At Viisi, we understand all the factors that influence your maximum mortgage amount. One key factor is the loan-to-value ratio—the relationship between your mortgage loan and the market value of your property.
In the Netherlands, you can typically borrow up to 100% of your home’s market value (106% if you also finance energy-efficient upgrades). But even long after purchasing your home, the LTV remains crucial. Monitoring it can lead to substantial savings.
How to calculate your loan-to-value ratio
To calculate your loan-to-value, divide your outstanding mortgage balance by the current market value of your home:
(Mortgage amount / Property market value) x 100 = Loan-to-value
Example: (€395,000 mortgage/ €450,000 market value) x 100 = 88%
Tip: Check your loan-to-value and compare it to your lender’s risk surcharges. A small additional repayment might move you into a lower risk class, potentially lowering your interest rate.
Why the loan-to-value ratio matters: It's all about risk
The loan-to-value ratio reflects the risk your lender has in the books. The risk is that if you cannot afford the mortgage payments anymore, the property has to be sold to recover the loan. A higher LTV means higher risk. Property prices can go down. Imagine you started with a mortgage equal to the market value of that moment. And housing prices go down by 10%. With an initial mortgage and market value of €400.000 and a drop in the market value of 10%, the loss when selling after the drop is €40.000 (and additional costs for the sale process itself).
On the other (positive) side, as your home value increases or your mortgage decreases, the LTV drops. So, the risk of a loss when foreclosing is lower.
Moving to a better risk class
Your mortgage interest rate is tied to your loan-to-value ratio. Lenders charge lower interest rates when you borrow a smaller percentage of your home’s value.
Each lender sets its own LTV thresholds, creating different risk classes. If your loan falls into a lower risk category, you may be eligible for a reduced interest rate— a reduction in the risk premium charged.
Here’s how it works:
- The base interest rate typically applies to loans up to 50% of a home’s value.
- Lenders add a risk premium to that base rate if you borrow more.
- Lowering your LTV by repaying part of your loan could reduce the risk premium.
Loan-to-value and NHG mortgages
Do you have a mortgage with the National Mortgage Guarantee (NHG)? Then, you likely benefit from a lower interest rate. The Dutch government guarantees the NHG loan, so lenders don’t charge extra for high LTVs. Even if your LTV is 100%, your rate might be equal to someone borrowing just 50% with a regular (non-NHG) mortgage.
Get a free consultation to discover your possibilities
The appointment will take half an hour and you may ask any question you want.- One advisor for the whole process
- Academically educated advisors
- Advised over 15,000 home buyers
How a lower loan-to-value affects your monthly costs
Here’s what a falling loan-to-value means for your interest rate and monthly payments, based on a €500,000 annuity mortgage with a 30-year term:
| Risk class | Interest rate | Gross monthly payment |
|---|---|---|
| Up to 106% LTV | 3.93% | € 2,373 |
| Up to 90% LTV | 3.84% | € 2,346 |
| Up to 80% LTV | 3.79% | € 2,331 |
| Up to 70% LTV | 3.78% | € 2,328 |
| Up to 60% LTV | 3.69% | € 2,301 |
| NHG and up to 50% LTV | 3.60% | € 2,273 |
Contact your lender proactively
Your current interest rate reflects the risk when your fixed-rate period began. But your risk profile may have improved since then. Maybe your home has increased in value, or you’ve repaid a significant part of the loan.
Check your loan-to-value and contact your lender if:
- Property prices in your area have gone up;
- You renovated or improved energy efficiency;
- You are repaying your mortgage monthly with an annuity or linear mortgage;
- You made extra repayments.
Take action: How to assess your home’s value
Want a better idea of your home’s current value? Start with the WOZ value (available online for free), though this is often just a rough estimate.
For a more accurate picture, try:
- Walter Living: Offers free tools with a basic account.
- Slimbieden: Calculates a realistic market value. Ask your Viisi advisor about the 15% discount!
Knowing your market value helps you understand whether you’re close to dropping into a better loan-to-value bracket.
Get your home appraised
Some lenders require a formal appraisal to prove your property’s value. However, every lender accepts a recent appraisal report as proof of your home’s new value.
- Full appraisal: € 635 - € 850, valid for up to 6 months
- Desktop appraisal (e.g., via Calcasa): approx. €100, faster and cheaper
Should you make extra repayments?
Once you know your home’s value, you can calculate how much you need to repay to reach a lower LTV category.
Your Viisi advisor can help you weigh the pros and cons of various options, such as whether to pay your mortgage or invest your savings elsewhere.
Other ways to reduce your interest rate
Are you looking for more ways to lower your mortgage rate? Consider refinancing, especially if your fixed-rate period is ending soon. You can secure a much better deal. Want to find out exactly how much you could save?