Loan-to-Value Ratio – Why It Matters More Than You Think

Buying a home often begins with excitement — finding the perfect property that suits your needs and budget. But once the search ends and the paperwork begins, one term tends to surface during the loan discussions: Loan-to-Value ratio. It may sound complex, but it’s actually a key factor that shapes how much you can borrow and what your loan terms might look like. 

The LTV ratio is more than just a number on your application. It affects your down payment, influences your EMI, and plays a role in how lenders assess your loan profile. Whether you’re applying for your first Home Loan or transferring an existing one, understanding this concept can make your financial planning a lot clearer — and your homeownership journey a lot smoother. 

What Is the Loan-to-Value Ratio?

The LTV ratio is simply the percentage of the property's market value that the lender is willing to lend. So, if you’re buying a home worth Rs.80 Lakh and the lender approves a loan of Rs.64 Lakh, your LTV ratio is 80%. The remaining Rs.16 Lakh becomes your upfront contribution. 

LTV is a balancing act between the lender’s exposure and your financial feasibility. A higher LTV means less upfront payment for you, but it also means the lender is covering a larger share of the property’s value. This is why understanding LTV early on in the loan journey is essential. 

LTV Calculation in a Home Loan

The LTV calculation is based on the property’s appraised value — not necessarily the price you’ve agreed upon with the seller. Lenders usually assess the property to determine its value. Once that value is decided, the LTV is simply calculated using this formula: 

LTV = (Loan Amount ÷ Property Value) × 100 

Let’s say your property is valued at Rs.75 Lakh and the lender offers you a loan of Rs.60 Lakh. In this case: 

LTV = (60,00,000 ÷ 75,00,000) × 100 = 80% 

High LTV Home Loans – The Pros and Cons

A high LTV Home Loan means you pay less out of pocket upfront — which is especially helpful if you don’t want to disturb your savings or investments. It can help you buy your dream home sooner, or simply ease the financial strain of a large down payment. However, there’s a flip side. Higher LTV loans may attract slightly higher interest rates.  

If you have surplus funds, contributing a higher down payment could help lower your EMI obligation and improve your loan terms. But if liquidity is a concern, opting for a higher LTV loan can still work — just be mindful of the overall cost. 

When planning your Home Loan, it’s easy to focus solely on EMIs, interest rates, and tenure. But your Loan-to-Value ratio quietly influences all of these — from how much you can borrow to how much you’ll repay over time. 

By understanding how LTV works, how it’s calculated, and how it impacts your financial journey, you can take more control of your loan application and make decisions that truly serve your goals.