Encyclopedia
Loan-to-value (LTV)
The loan amount as a share of the property's value.
For example: A lender sets its maximum LTV for a building, which tells the buyer how much cash is needed. (Illustration only, not a real deal.)
This is a general industry term with no single official definition. Your lease or contract wording controls.
Example only, not a real client. Say you agree to buy a small office building and your lender will lend up to a set share of its appraised value. The appraisal comes in below your price, so the loan is smaller than you planned. Because you kept a cash cushion and built time into your financing subject, you cover the gap and still close on schedule.
What I’d tell a friend
Plan for an appraisal that comes in lower than your price. Keep a cash cushion and leave room in your financing subject.
Why it matters to you
It decides how much cash you need to close. If the appraisal comes in below your price, the loan shrinks with it and the gap comes out of your pocket, so build some room into your plan.
How to use it in your deal
Ask lenders early for their maximum LTV for your property type and whether it's based on appraisal or price. Order the appraisal early if timing is tight. Owners refinancing should check whether a lower appraisal would force a smaller loan. Borrowers should plan for renewal, since a drop in value can mean the lender wants a paydown. Owner-users should ask whether different programs apply.
Lenders apply LTV to the lower of price and appraised value, so overpaying doesn't raise your loan. Ask the lender early what value they'll use, and keep cash ready to cover a gap. Ask the lender whether it uses the price or its own appraisal for the value.
Mistakes I see
Assuming the maximum LTV is available. Forgetting debt coverage limits the loan too. Relying on the purchase price when the appraisal comes in lower. Not keeping cash for a paydown at renewal.
In BC and Vancouver
Lenders set LTV limits. Canada Mortgage and Housing Corporation (CMHC)-insured multifamily programs have their own rules; check CMHC's site for current criteria rather than relying on old figures.
Official sources: Canada Mortgage and Housing Corporation · Bank of Canada: key interest rates
How the ratio works
Loan to value compares the size of the loan with the property’s value. Lenders usually use their own appraisal for the value, not the price you agreed, and the lower of the two often wins.
Lenders set maximum ratios that vary by property type, location, borrower strength and market conditions. A lower ratio usually means less risk for the lender and sometimes better terms for you.
When the numbers do not line up
If the appraisal is low, your options include adding more cash, asking the seller to lend part of the price, renegotiating the price or trying another lender.
Talk with your lender or mortgage professional early about the ratio it offers for your property type, so you know how much cash you need before you write an offer.
Questions to ask before you sign
- What's your maximum LTV for this property type?
- Is it based on price or appraisal?
- Which test limits my loan: LTV or debt coverage?
- What happens at renewal if values fall?
Related guide: How BC lenders size a commercial loan in 2027.
Keep readingRelated terms: Debt service coverage ratio (DSCR), Appraisal
- Buying a commercial property in BC, step by step
- Financing a commercial property in BC through your bank
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General information for British Columbia only. It isn’t legal, tax, accounting or financial advice, laws and rates change, and reading it doesn’t make you my client. Any numbers or scenarios are hypothetical. Check the linked official source and talk to a lawyer, accountant or other qualified professional before you act or sign anything. See the terms and disclaimer.