Loan-to-Value Ratio

Loan-to-Value (LTV) ratio refers to the percentage of the property’s value you stand to get as the loan amount from your lender. The LTV is important to the lender so they can evaluate how much they can sanction as a loan sum against your property value and ensure that your loan amount does not exceed your repayment capacity, or the price of the property.

The Reserve Bank of India has set guidelines for all lenders that dictates the loan amount disbursal policy. The current Home Loan LTV ratio stands at 75% to 90% of the property value, reinforcing that lenders can only fund up to 90% of the property value, and not more.

Your LTV ratio and down payment are important things to consider when you are contemplating buying a new house. A sizeable down payment brings down your loan-to-value ratio, which boosts your chances of Home Loan approval.

Loan to Value Ratio is calculated using this formula:

LTV Ratio = Loan principal amount/Property Value x 100

LTV formula suggests that if your desired property costs Rs.1 Crore* and the lender can extend an LTV of 75%, your loan amount may stand to be Rs.75 Lakhs.

As the LTV is a crucial checkpoint for mortgage loan lenders, it also becomes an important criterion for your loan eligibility. Read on to understand how one’s loan-to-value ratio can impact their loan amount and approval.

​​​​LTV's importance in a ​H​ome ​L​oan application lies in reducing EMIs and saving money over the loan tenor. To lower it:​​​

1. ​​​​Save more for a bigger down payment and avoid rushing into buying a home. Waiting to accumulate more savings will result in a lower loan interest and help achieve your dream of homeownership.​​​

2. Consider more affordable home options if a larger down payment is challenging. Choosing a lower-priced home means borrowing less, which decreases your LTV. Though it may mean compromising on your dream home, your current savings will cover a larger portion of the purchase price.​​​

​​​When applying for a ​H​ome ​L​oan, comprehending the impact of a high Loan-to-Value (LTV) ratio is crucial for your financial well-being and long-term savings. Although LTV is significant, it's essential to recognize that lenders consider multiple factors, including income, credit scores, and outstanding liabilities, when approving a borrower.​ ​Understanding these aspects holistically will put you in a better position to manage your loan effectively and secure favorable terms for your home financing.​​

Your Home Loan eligibility is notably tied to your LTV ratio, as the amount you request is evaluated by the lender based on your LTV eligibility. Here are some points to keep in mind before applying for a Home Loan:

• Assess your loan amount request and ensure that the LTV ratio does not exceed the lender’s disbursal policy. Note that high LTV applicants may face a higher chance of rejection, as a high LTV means more risk for the lender.
• Consider making a sizeable down payment, so you borrow a smaller principal amount and bring down your total cost of borrowing.
• Apply for a joint Home Loan with co-applicants to enhance your Home Loan eligibility. If your income or repayment capacity falls short, or the value of the property is too high, a joint application can be the right step, as the lender can rely on all co-applicants for a stronger eligibility.

Potential borrowers can consider applying for a Home Loan with Bajaj Housing Finance for competitive interest rates and flexible repayment tenors. They can also benefit from a sizeable loan sanction and hassle-free application process, so there are no obstacles to their home buying venture.

*Terms and conditions apply

​​​​The Loan-to-Value (LTV) ratio is a crucial metric for assessing borrower risk when considering a loan opportunity. A higher LTV, near or at the appraised asset value, leads to a higher interest rate and risk perception. To lower the LTV and reduce monthly EMIs, consider making a larger down payment. This reduces interest costs and shortens the loan tenure. Higher LTV ratios may require additional ​H​ome ​L​oan insurance, increasing monthly EMIs.​​​

​​​​Lenders use LTV to evaluate ​H​ome ​L​oan eligibility, favoring borrowers with lower LTVs. Refinancing becomes more viable with an LTV of 80% or lower, enabling better terms and lower interest rates. Building home equity is essential, as a higher LTV indicates less ownership in the property. A larger down payment helps increase home equity, providing a stronger financial position for the borrower.​​​