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A loan to value or LTV is the ratio is the credit amount provided compared to the value of your mortgaged property. Lenders offer advances depending on the LTV, ranging between 50% and 95% of the value of your property.
The Reserve Bank of India (RBI) sets to relax the loan to value ratio, which makes secured loans even more affordable. For credits above Rs. 75 Lakh that carries a mortgage with an LTV ratio of 75%, the risk weight is reduced by 25% and stands at 50% only.
You can use a loan to value calculator to estimate the amount you can avail against your asset. For instance, if the cost of your property is Rs. 1 Crore and the loan amount disbursed is Rs. 80 Lakh, the loan to value ratio stands at 80%.
What is a loan to value calculator?
LTV calculator is an online calculator provided by your lender with which you can estimate the loan amount you are eligible for while you avail a loan against property.
How do LTV calculators work?
To use a loan to value calculator you are required to share your employment status (salaried or self-employed), type of property to be mortgaged (residential or commercial) and value of the property.
Example 1 – If you are a salaried employee and wish to mortgage a residential property holding a value of Rs. 2.5 Crore, the loan amount you will be eligible for will be of up to Rs. 1.75 Crore. The LTV ratio, in this case, is 70%.
Example 2 – In case you are a self-employed individual and wish to mortgage a residential property worth Rs. 3 Crore, the loan amount you can avail is of up to Rs. 2.10 Crore. The Loan to value ratio is 70%.
Similarly, if you mortgage a commercial property of Rs. 3 Crore, you are eligible for a loan amount of up to Rs. 1.95 Crore. The LTV ratio against this loan against property is 65%.
How a loan to value ratio affects mortgage loan?
The impact of LTV is one of the things you need to know before applying for a loan against property. The LTV impacts your –
- Loan Amount
As mentioned, the loan amount will depend on the LTV ratio. Lenders offer advances with a loan to value ratio ranging between 50% and 95%. You can make use of a loan to value calculator to estimate the ratio and the amount you are eligible for.
- Interest rates
Advances with lower loan to value ratio offer minimal charges on your LAP. Also, the risk of defaults is much lesser for advances with lower LTV. Lower LTV suggests that the loan amount is comparatively lower than the value of your property.
With loans having 50% LTV you can avail up to Rs. 50 Lakh against a property worth Rs. 1 Crore which reduces the associated risk. While higher LTV, for instance, loan to value ratio of up to 75% will allow you to avail credits of up to Rs. 75 Lakh against an asset of Rs. 1 Crore which increases the risk of payment defaults. Lenders often determine the interest rate depending on these factors; high risk lending are likely to fetch greater interests.
Several financial companies offer mortgage loan against an attractive interest rate. NBFC that provides Loan Against Property at a competitive rate against minimal documents.
They also have introduced pre-approved offers to reduce the hassle of the application process to help save time. These pre-approved offers are available on multiple financial products such as home loans, personal loans, business loans, etc. To take a look at your pre-approved offer, you are required to share minimal details like your name and phone number.
Apart from the LTV ratio, other factors that affect your loan against property in India such as income, CIBIL score, job stability, asset value, etc. It allows a borrower to determine the risk associated with lending and disburse secured loans accordingly to prospective borrowers.
