Loan to value ratio or LTV is one of the many essential technical terms associated with secured credit facilities. This ratio measures the relation between the current market value of the mortgaged property and the requested loan amount. This measurement helps lending institutions assess the lending risk for a particular line of credit.
In simple terms, this value determines the percentage of the property value an applicant can avail of as loan amount. One can use an LTV calculator to get this amount quickly and avoid the hassle of manual calculation.
What is a loan to value calculator?
Several financial institutions in India offer a free-to-use online tool known as an LTV calculator which helps borrowers determine the exact loan amount they will be sanctioned against the market value of the property.
A loan to value calculator can be used along with a loan against property EMI calculator to determine the monthly instalments and plan the expenses accordingly.
An LTV calculator works on the following mathematical formula:
Maximum loan amount= LTV x Appraised value of the property
Let us understand this by taking an example. Suppose the LTV calculator for a particular lender is set at 70% and the market value of the property is Rs.2 crore. This means that the lending partner will sanction a maximum loan amount of Rs.1.40 lakh against the property.
How to use an LTV calculator?
Willing borrowers can determine their LTV with the help of the calculator by following these simple steps:
Step 1: Visit the official website of a preferred lending partner and look for the option of ‘loan to value calculator’.
Step 2: Then, select salaried or self-employed.
Step 3: Enter the market value of the residential or commercial property.
Step 4: Select the loan repayment tenor or use the slider to adjust the variables as required.
Step 5: Enter the rate of interest as charged by the lending institution.
On filling up all the variables successfully, the tool will generate the monthly instalments for the loan against property and the maximum eligible loan amount.
Factors that affect LTV calculation
There are several factors that decide a high or low LTV ratio for a property. These factors are as follows:
- Commercial vs residential property (LTV is higher for residential property than commercial property)
- Vacant properties vs occupied properties (Vacant properties have high LTV ratio than occupied properties)
- Property’s age (Newer properties attract higher LTV ratio than older properties)
- Location of the property (A property situated in a prime location with all modern amenities tends to attract a higher LTV ratio)
Can borrowers get a loan against property worth 100% of the LTV?
The LTV or loan to value ratio of a particular property depends on several important factors, such as the property type, down payment made, etc. Generally, the LTV ratio is higher for residential properties than it is for commercial properties.
At times an applicant might request for a loan amount that is equal or near to the market value of the property. However, for several security concerns, lending institutions refrain from approving a loan against property with a 100% LTV ratio.
When an applicant requests a loan amount near or equal to the property’s market value, financial institutions consider that this a high risk due to increased chances of credit defaults.
Further, in cases of foreclosure, the lenders might find it difficult to resell the mortgaged property and recover the outstanding balance for a loan against property.
Several financial institutions in India extend pre-approved offers on their financial products, such as property loans, home loans, etc. These exclusive offers streamline the entire approval process and helps in fast disbursal of the loan amount.
So whether buying a new property or opting for a LAP, borrowers should know how loan to value ratio affects the total borrowing cost. They can consider using an LTV calculator to determine the same. Further, they can also use the loan against property calculator to know the EMIs payable before applying for this credit facility.
