Loan-to-Value Ratio (LTV)

Loan-to-value ratio is the loan amount divided by the property's price or value. A $187,500 loan on a $250,000 property is 75% LTV. It sets the down payment, and therefore most of the cash invested that cash on cash return divides by, and it sets the debt service subtracted from NOI.

Higher LTV means less cash in and more debt service. Whether that raises or lowers cash on cash depends on the cap rate versus the mortgage constant. On the default deal at 7.25%, 80% LTV returns 6.0%, 75% returns 6.3%, and all cash returns 7.7%: leverage is slightly negative, so more LTV means a lower return.

Lenders cap investment purchases at 75 to 80% LTV and cash-out refinances at 70 to 75%. Within those limits the investor chooses. The calculator shows the return at any LTV, and the all-cash return beside it tells you which direction the leverage is working before you decide how much to put down.

Further reading: Loan-to-Value Ratio (LTV) on Wikipedia.