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Loan-To-Value Ratio (LTV) (All You Need To Know About LTV)

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Loan-To-Value Ratio

LTV Meaning

LTV is one of the major factors in determining your loan eligibility especially in secured loans such as home loans, mortgage loans & commercial loans where a property is pledged as a collateral to avail a loan. It is an important determinant based on which the lender Banks/NBFCs/HFCs approves the loan. LTV full form is Loan-To-Value. It is always expressed in a percentage.

The LTV ratio in housing loans differs with the market value of the property while the LTV ratio for the mortgage loans & commercial loans remain uniform irrespective of the loan amount and the market value of the property.

Importance Of LTV

  • The lender uses the LTV ratio to assess the risk involved in approving secured loans of home loans, mortgage loans and commercial loans.
  • The LTV helps you to know the maximum loan amount you can get against the property.
  • The LTV determines that the lenders do not over-lend to the cost of the property.
  • In mortgage loan/loan against property you can enhance your loan eligibility by considering your multiple properties for LTV calculation.

RBI Norms On LTV Funding

The RBI has set up norms on the LTV funding on the loans, for all lenders. According to the norms the lenders cannot lend above the standard loan to value ratio. Given below is the grid on the RBI guidelines on LTV funding Ratio, applicable for all lenders for home loans, mortgage loans, commercial loans & industrial property loans.

  Home Loan Mortgage Loan Commercial Loan Industrial Property Loan
Property Market Value LTV Ratio RBI   (% of the property market value)
Below Rs.30 Lakhs 90%     Up-to 70%     Up-to 70%     50% – 60%
Rs.30 Lakhs – Rs. 75 Lakhs 80%
Above Rs.75 Lakhs 75%

The LTV Ratio Calculation & Eligibility Calculation

The loan eligibility of the borrower is calculated on the basis of his income eligibility subject to the LTV funding ratio i.e. the lower figure of the two will be his loan eligibility. The eligibility will be calculated as under: –

a) Income Eligibility –
{[(Net income per month X FOIR %) – Current Obligation] ÷ Per Lakh EMI}

b) Eligibility as per market value of the property –
Market value of the property X applicable LTV %

(FOIR stands for fixed obligation against income ratio)

                        Loan To Value Ratio Formula

  • LTV calculation for Home Loan – Market value of the property X Up-to 90%
  • LTV Mortgage Loan – Market value of the property X Up-to 70%
  • For Commercial Loan – Market value of the property X Up-to 70%
  • For Industrial Property Loan – Market value of the property X Up-to 60%

Additional Read: 3 Popular home loan schemes of the top lenders

Best Lenders That Provide The Maximum Funding

  • HDFC – HDFC provides the best LTV ratio of 90% on the home loans & 100% funding on home extension loans and home improvement loans.
  • Canara Bank – Canara Bank provides the best loan to value ratio for home loans of 90% for purchasing a new property/builder purchase.

The major difference in LTV funding between private banks and nationalized banks is the age of the property. With many nationalized banks the LTV ratio for home loans is restricted to 80% or 75% depending on the age of the property. If the property age is less than or equal to 10-15 years the LTV ratio for housing loan will be restricted to 80% and if the property is more than 10-15years old the LTV ratio applicable will be 75% of the market value of the property. Further the LTV in home loan also varies depending on the quantum of the home loan that you borrow. While with the private banks the LTV ratio remains the same irrespective of the loan amount and the age of the property, the nationalized banks have low LTV ratios. 

LTV And Home Loan Interest Rates

High loan to value indicates higher risks for funding to the lenders while a low loan to value ratio indicates lower risks of funding. Therefore, a lower LTV ratio earns you a better chance for home loan terms and to get a home loan at lowest interest rates. The lower the LTV ratio the lower are the home loans terms & conditions and interest rates of the lenders and vice-a-versa.

There are banks whose home loan interest rates vary from applicant to applicant depending on their CIBIL scores and LTV %, such as SBI, Kotak Bank, etc. With SBI’s Flexi pay home loan and home loans with Kotak Mahindra Bank you will be charged with the interest rates which will vary depending on the LTV % of the market value of the property irrespective of the loan amount that you borrow. In Kotak the interest rates charged for home loans are divided into two LTV categories i.e., below 80% LTV on home loan and LTV between 80% – 90%. The interest rates for LTV 80% – 90% are 0.10%-0.15% higher over the interest rates available for the LTV below 80%.

However, the interest rates with the banks such as ICICI & HDFC which tops the ranking for maximum funding, has uniform home loan interest rates irrespective of the LTV ratios and the loan amount.

Important Notes:

  • Market value of the property is important to determine the loan to value.
  • Remember when your loan requirement is minimum against the high value of the pledged property, your LTV percentage is minimum and your chance to secure a low cost home loan/low cost mortgage loan/ low cost commercial loan & industrial property loan is high because of the low risk to the lender Banks/NBFCs/HFCs.
  • LTV constraints on the property funding is one of the common reasons why your home loan gets rejected or mortgage loan/commercial loan/industrial property loan gets rejected.
  • The lower the loan to value ratio the higher the own funds you need to pay to purchase a property.
  • The maximum LTV for home loan is 90% of the property valuation.
Apply For A Home Loan

Current Home Loan Interest Rates Of The Leading Banks

Bank Name Home Loan Rate Of Interest Home Loan Processing Fees Loan Tenure
ICICI Bank 6.80% p.a. onwards 0.30% of the loan amount + applicable GST Up-to 30 years
Limited period offers with ICICI Bank Zero processing fees (PF) for cases above Rs.1 crore. Applicable GST on the PF to be paid by the borrower. CLICK.
HDFC Bank. 6.700% p.a. onwards Up-to 0.50% – up-to 1.50% of the loan amount + applicable GST Up-to 30 years
Limited period offers with HDFC Bank Rs.5,900/- + GST (For Salaried) CLICK.
Canara Bank 6.90% p.a. onwards. Rs.10,000/- + applicable GST Up-to 30 years
Click to get the complete chart

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Loanfasttrack

Loanfasttrack is a Mumbai based loan provider company since 2015 offering loan services in Mumbai on– housing loan in Mumbai, mortgage loan in Mumbai, personal loan in Mumbai, business Loan in Mumbai, unsecured business loans,home loan transfer, top-up loans and loan transfers. Loanfasttrack is a direct sales associate with leading banks namely, ICICI Bank, HDFC Ltd, Canara Bank, Citi Bank, Piramal Housing Finance, etc.

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