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Understanding Loan to value ratio

4 Min 28 Jun 2022
  • What is Loan-to-Value Ratio?
  • How does Loan-to-Value Ratio Work?
  • RBI Guidelines on Loan-to-Value Ratio
  • How to Use the Loan-to-Value Calculator?

What is Loan-to-Value Ratio?

A host of factors is considered before the lender approves the requested loan amount - one of the crucial ones being the Loan-to-Value Ratio (LTV). The LTV ratio, expressed in percentage, refers to the portion of the property value you are eligible to get as the approved loan amount.

Assume the lender permits an LTV ratio of 70% of the property value. If your property is valued at Rs.1 Crore, you will be permitted to borrow up to Rs.70 Lakh, provided you meet the lender's other eligibility criteria.

Note that this example is explanatory and is not to be relied on for actual LTV calculations during loan preparations.

The RBI’s Guidelines on the Loan to Value Ratio

The Reserve Bank of India (RBI) has a set of guidelines for the LTV ratio on Home Loans.

  • Lenders can sanction up to 90% of the property’s value for Home Loan amounts worth Rs.30 Lakh 
  • Lenders can sanction up to 80% of the property’s value for Home Loan amounts ranging between Rs.30 Lakh and Rs.75 Lakh
  • Lenders can sanction only up to 75% of the property’s value if the Home Loan amount exceeds Rs.75 Lakh

How to Use the Loan-to-Value Calculator?

Employing the help of a loan-to-value calculator is an easy way to determine what percentage of your property’s value you stand to receive as a Home Loan. To start with the online LTV Calculator, enter:

  • Provide the estimated value of your property
  • Select the type of property: residential or commercial
  • Enter your own monthly income and obligations
  • Select the interest rate you want
  • Select your preferred repayment tenor

The calculator window will present the maximum loan amount you are eligible for based on the value of your property and the LTV ratio. This can help you tailor your Home Loan application and play to your strengths, to ensure that you are eligible for speedy approval.