Equity is value minus every lien
Equity is current market value minus all debt secured by the property, not the original down payment. On a home now worth $400,000 with a $255,000 first mortgage and a $15,000 equity line: $400,000 − ($255,000 + $15,000) = $130,000. Subtracting only the first mortgage gives $145,000. The original down payment — say $30,000 — is not current equity, because appreciation and principal reduction have increased it since.
LTV uses the lesser of price or appraisal
Loan-to-value is loan ÷ value, and the value is the lesser of sale price or appraised value. A $285,000 loan on a $300,000 purchase that appraises at $310,000: $285,000 ÷ $300,000 = 95%. Dividing by the higher $310,000 appraisal gives 91.9% and uses the wrong denominator; inverting the ratio gives 105.3%; 5% is the down-payment percentage, the complement of LTV rather than LTV itself.
CLTV counts every mortgage
Combined loan-to-value totals all mortgage balances over that same lesser figure. A $180,000 first and a $45,000 second on a $290,000 purchase appraised at $300,000: ($180,000 + $45,000) ÷ $290,000 = 77.6%. Counting only the first mortgage gives 62.1%, which is the LTV, not the CLTV; dividing the correct $225,000 by the higher $300,000 appraisal gives 75.0%.
The 80% and 78% PMI thresholds
Under the Homeowners Protection Act the borrower may request PMI cancellation when the balance is first scheduled to reach 80% of original value, and PMI terminates automatically at 78% of original value. Original value is the lesser of contract price or appraised value at consummation — not current value.
Worked example: $300,000 price, $310,000 appraisal, $270,000 loan. Automatic termination occurs at 0.78 × $300,000 = $234,000. The $240,000 balance is the 80% request threshold, where the servicer is not yet required to act. Applying 78% to the $310,000 appraisal gives $241,800, and applying 80% to the $270,000 loan amount gives $216,000; both use the wrong base.