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Understanding Loan-to-Value Ratio (LTV)

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  • Highlights

  • What is the Loan to Value Ratio?

  • How Does the Loan to Value Ratio Work?

  • The RBI’s Guidelines on the Loan to Value Ratio

  • The Relationship Between Loan to Value and Home Loan Eligibility

  • How to Use the LTV Calculator?

The pleasure of owning a home is a dream everyone strives to realise. With owning a home comes a sense of security and peace of mind. Moreover, with an uncertain economy, owning property or a home is a necessary way to own a worthy asset. However, due to the volatile inflation rate today, becoming a proud homeowner is made possible largely through a home loan. Some factors to consider after deciding to take a home loan include the loan's rate of interest, the loan duration, monthly EMIs, and loan to value ratio (LTV ratio).

The LTV ratio is a crucial factor that helps determine whether your home loan application gets approved. The LTV loan ratio is greatly valued by lenders, commercial banks, and Non-Banking Financial Companies (NFBC) because it plays a vital role in your home loan eligibility.

Since a home loan requires large sums of money, your lender, whether a bank or an NFBC, employs a variety of risk estimation models to checkmate the chance of future bankruptcy. The LTV, or the loan amount to the property value, is one of the lender's models. The loan to value ratio is the amount of the property or home value that the bank offers as the home loan amount. You could also call it the percentage of the property’s value that your lender can pay. If the loan to value ratio for your lender is 90%, they offer 90% of the property’s value as the home loan amount. 

Also, you should note that your lender does not view the sale value as an equivalent of the property’s value. As your lender considers your home loan bid, it dispatches a team to assess the property or home. A fair estimation of the property is the goal of the assessment team. Because of the situation, the lender recognizes this worth as genuine and disburses a percentage as the home loan amount. Several Indian banks have a loan to value ratio of 80%. The percentage may reach 90% but this exception relies on the borrower’s credit status. The LTV loan ratio determines the amount of down payment on the property. 

Whether a home loan gets sanctioned or not depends on the loan to value (LTV). To understand LTV meaning and how to use the LTV calculator, read on. 

MCLR: What Does It Mean?

The loan to value ratio is the absolute amount established on the property value that will be disbursed as a home loan amount. To be clear, your lender has a legal right to your property as a form of security in case you are unable to pay the loan amount within the specified duration.

The LTV ratio informs you, the home loan seeker, of the exact value of the loan amount you can receive. It is one of the major determinants of whether the lender approved your home loan application. 

Now that you know the loan to value meaning, read on to learn how the LTV Calculator works. 

How Does the Loan to Value Ratio Work?

The exact home loan amount you receive relies on several factors like the strength of the property’s security, your home loan eligibility, an impeccable credit rating, and so on. To decide the loan amount you receive, your lender utilises the LTV loan to estimate the home loan amount. With the LTV ratio, you get to know how much you eventually receive.    

Read on to learn the Reserve Bank of India’s guidelines on the loan to value ratio. 

The RBI’s Guidelines on the Loan to Value Ratio

The guidelines of the Reserve Bank of India (RBI) or Indian Reserve Bank state that the LTV loan for home loans can soar to 90% of the property's worth for home loan amounts up to Rs.30 lakh. The loan to value is fixed for 80% when the home loan amounts are over Rs.30 lakh and up to Rs.75 lakh. For home loan amounts over Rs.75 lakh, the loan to value is 75%.

What this means is that for an LTV loan of 90%, you will settle around 10% of the property's worthwhile the home loan amount covers the outstanding sum. Knowing the loan to value ratio helps you estimate the lowest sum you will pay as a down payment for the property.

How to Use the LTV Calculator

The Loan to Value Calculator is an easy way to determine the loan to value ratio for the property your home loan will purchase. To start with the online LTV Calculator, enter: 

  • The category of loan you want to apply for.
  • The property's worth.
  • The amount you can make as a down payment for the property.

Upon completion of these steps, the LTV ratio is determined. Remember that a low loan to value ratio is helpful for a better interest rate on your loan. 

Get Started Today!

Now that you know the LTV meaning, how it works, and how the LTV calculator operates, click here to use Bajaj Housing Finance's online loan to value ratio calculator.

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