LTV Calculator: How to Determine the Loan-to-Value Ratio

by Ramesh

Loan-to-value (LTV) ratio is the percentage of an asset’s value that a borrower gets as a loan from the lender. It is the maximum amount of a secured credit based on the market value of the pledged asset. Generally, the loan-to-value for a loan against property ranges between 60% and 75% of a property’s appraised value. Calculating the LTV ratio can become tricky if done manually. Hence, individuals can take the help of an LTV calculator to get accurate results.

How to use the loan-to-value (LTV) calculator?

The LTV ratio calculator is a specialised online tool that helps determine the ratio of the loan amount a person wants to borrow against the property value. Following is the step-by-step process for using an LTV calculator:

Step 1: Navigate to the official website of a preferred lender
Step 2: Select the type of asset
Step 3: Then the user must enter the estimated property value which he/she has decided to offer as collateral.
Step 4: Check the eligible amount of loan against the property value

After learning how to use the loan-to-value calculator, individuals should take a quick look at the formula to compute the LTV ratio.
What is the formula for calculating the loan-to-value (LTV) ratio?

Mentioned below is the formula to calculate the loan-to-value (LTV) ratio for a loan against property:

LTV ratio = (Loan amount / Property value) X 100
Suppose a person owns an asset worth Rs.8,00,000 and he/she wants to avail a loan against Rs.6,00,000. Then the LTV ratio will be:
LTV ratio = (6,00,000 / 8,00,000) x 100 = 75%

This shows that the amount of credit is 75% of the value of the property. Generally, lending institutions use LTV ratios to determine the risk present within the loan and the interest rate they impose on borrowers.

Besides, there are several other factors such as income eligibility, credit score, age of property, etc., which play a significant role in the lending process of property loan.

What are the important factors affecting the LTV ratio in property loans?

Mentioned below are the common factors affecting the loan-to-value (LTV) ratio of the loan against property:

Type of property
The type of property is one of the major factors that influence the LTV for loan against property. Generally, in comparison with commercial properties like office buildings, medical centres, retail stores, hotels, etc., the loan-to-value (LTV) ratio for residential properties like private dwellings, dormitories, apartments, etc. is higher. When it comes to residential properties, borrowers can get the LTV ratio almost 10% higher than commercial properties.

Age of property
Generally, lending institutions consider old ancestral houses or aged buildings as unsafe and risky. This is why they either reject the loan request or provide a lesser loan-to-value (LTV) ratio against them. On the other hand, if the building is recently built, a borrowing person can get a considerably higher LTV ratio. Thus, the age of the asset can act as an important factor in determining the LTV ratio while availing a LAP.

In general, the loan-to-value ratio (LTV) ratio varies from one lending institution to another. This means there are many lenders that provide higher LTV ratios while some of them offer lower LTV ratios. Thus, it is essential to know the percentage of LTV ratio while availing a loan against property. Usually, non-banking financial institutions (NBFCs) offer higher LTV ratios compared to banks.

Credit score
Another important factor affecting the LTV ratio in property loans is the credit score of an individual. To be precise, retaining a credit score of 750 is treated as ideal. Thus, a borrower having a credit score of 750 or above has a better chance of getting a substantial loan value i.e. higher LTV ratio of the LAP from the lender.

Status of occupancy
Last but not the least, one of the most essential factors that affect the LTV ratio of an LAP is the occupancy status of the pledged property. If the asset appears to be occupied, there is a possibility that it might attract a higher loan-to-value (LTV) ratio than compared to a vacant one. Furthermore, the lending institutions provide higher LTV if the asset is occupied by the borrower. Hence, it is sensible to mortgage a self-occupied property instead of a rented or vacant space.

Many reputed lenders provide pre-approved offers on various credit options like housing loans, LAP, etc. Doing so helps in expediting the overall process of lending. Individuals eligible for pre-approved facilities can check their offers online by entering their name and contact details.
With time mortgage loans like loans against property got immense popularity due to their perks and flexibility. However, before applying for this credit facility, it is essential to learn about the loan-to-value (LTV) ratio. To calculate this proportion, it is better to use an LTV calculator rather than calculating it manually.

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