Key perspective
Mortgage decisions become clearer when the underlying calculations are visible. This resource explains the major ratios and payment concepts used by lenders and borrowers.
Loan-to-value
Loan-to-value compares the mortgage amount with the lender-accepted property value. It is central to private, conventional and commercial mortgage decisions because it measures the lender’s equity cushion.
- LTV = mortgage amount divided by accepted property value
- A lower appraisal can increase the effective LTV
- Different lender types may have different maximum LTV limits
GDS and TDS
Gross debt service compares housing costs with qualifying income. Total debt service adds other recurring debt obligations. These ratios are screening tools, not guarantees of approval, because lenders also assess credit, property, liquidity and documentation.
Term versus amortization
The term is the period covered by the mortgage contract. Amortization is the projected time required to repay the balance if payments continue as scheduled. A longer amortization usually lowers the payment but increases total interest and slows principal reduction.