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Tata Capital > Blog > Loan for Home > LTV for Home Loan: Ratio, Calculation & Why It Matters

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LTV for Home Loan: Ratio, Calculation & Why It Matters

LTV for Home Loan: Ratio, Calculation & Why It Matters

If you are eyeing a residential property and contemplating how much home loan you will get on it, you are subconsciously assessing your LTV (Loan-to-Value) ratio. Not sure what we mean? The following section will make things clearer.

What is an LTV ratio?

The percentage of loan extended by the lender to the borrower against a fixed property value is the housing loan LTV ratio. Lenders typically assess the LTV ratio for home loan to determine the risk of lending a loan to a borrower.

The LTV full form is Loan to Value, and your LTV ratio for housing loan will depend on the kind of financial stability you can show to the lender. Housing finance usually covers anywhere between 75% to 90% of the total property cost, while the borrower puts down the rest as a down payment.

So, if you are planning on financing a large portion of the property value with the help of housing finance, a higher housing loan LTV ratio will be ideal and vice versa.

Remember, a higher LTV ratio for home loan means a bigger loan amount, favourable loan terms, and lower down payment. In contrast, a lower LTV for housing loan indicates a smaller loan amount, with usually a higher down payment.

Also, read – What is the OCR amount in a Home Loan?

How do LTV ratios work when it comes to housing finance?

Multiple factors determine your housing finance eligibility. The most prominent ones are:

  • Stable income
  • High credit score
  • Previous and ongoing debts

Let’s look at each of them in detail and figure out where LTV ratio home loan fits in the picture.

  • The higher your income, the better your chances of getting a higher LTV ratio. Meaning, if you make enough money, lenders will be more willing to extend a bigger loan amount, thus boosting your LTV for housing loan.
  • If you have a high CIBIL score, ideally above 750, your chances of getting a loan at a higher LTV ratio also goes up. This doesn’t mean you have to take a large loan. It simply means you are eligible for one.
  • Lenders will calculate the value of your ongoing debt, if any, against the amount of money you earn to approve an LTV ratio for a housing loan.

Also, read – What is a Leave and License Agreement?

How to Calculate Your Home Loan LTV Ratio (With Example)

The Loan-to-Value (LTV) ratio shows how much the property’s value is being paid using a home loan. Using this ratio, lenders can judge their risk on the loan. Then they can decide how much loan they can offer, the interest rate, and the down payment.

The formula to calculate LTV for home loan is:

LTV Ratio (%) = (Loan Amount ÷ Property Value) × 100

Let’s demonstrate how to calculate your home loan LTV ratio using an example. 

Suppose you are buying a house worth ₹50 lakh, and the bank approves a home loan of ₹35 lakh. The LTV ratio home loan would be:

LTV Ratio = (35,00,000 ÷ 50,00,000) × 100 = 70%

This means the bank is funding 70% of the property’s value. You must pay the remaining 30% from your own savings as a down payment. In general, a lower LTV ratio is better because it reduces the lender’s risk. Consequently, you could secure the loan on better terms.

To make this calculation easier, you can also employ an online LTV calculator. Within the calculator, you can enter the property value and the loan amount you want, and the calculator will instantly show your LTV ratio.

Also, read – What is EBLR and Its Impact on Loan Interest Rate?

5 Proven Tips to Improve Your LTV Ratio & Secure Better Loan Terms

Improving your LTV in home loan can help you get better home loan terms, such as lower interest rates. Here are five practical ways to improve your LTV ratio home loan:

  1. Increase your down payment

Paying more money upfront reduces the loan amount compared to the property value. A lower loan amount directly improves your LTV for home loan and makes you a safer borrower in the eyes of lenders.

  1. Choose appropriate property

Properties in well-developed areas with steady demand are considered less risky. A stable or appreciating property value helps maintain a healthier LTV ratio for housing loan.

  1. Pay off existing loans

Clearing personal loans or credit card dues improves your financial profile. This can allow you to improve your LTV for housing loan.

  1. Check the property valuation carefully

If a property is undervalued by the lender, your LTV in home loan ratio may increase. Research the market price properly before applying to avoid approval or interest rate issues.

  1. Improve your credit score

A good repayment history and strong credit score can help you negotiate better interest rates, even if your LTV ratio is slightly on the higher side.

Also, read – What is the Annual Value of House Property?

Slabs and upper ceiling for Loan to Value ratio

The LTV for housing loan slabs and ceilings for housing finance fall under the purview of the Reserve Bank of India. 

As per the RBI guidelines:

  • A lending institution can only approve up to 90% LTV if the loan amount goes up to Rs. 30 lakhs.
  • If the total loan amount falls between Rs. 30 lakhs and Rs. 75 lakhs, the LTV ratio for home loan can go up to 80%.
  • For a loan amount higher than Rs. 75 lakhs, the LTV ratio home loan cannot exceed 75%.

Also, read – What are Conversion Charges for Home Loans?

How LTV Impacts Interest Rates & Loan Tenure

LTV for home loan plays an important role in deciding your home loan interest rate and tenure. Lenders use the LTV ratio home loan to measure risk by comparing the loan amount to the property’s value. A higher LTV means the lender is funding a larger portion of the loan.

Interest Rates

Borrowers with a lower ratio of LTV in home loan are seen as financially stable because they invest more of their own money. So banks often offer lower interest rates and more flexible loan terms to such borrowers. In contrast, a higher LTV ratio for housing loan may lead to slightly higher interest rates.

Loan Tenures

With a lower housing loan LTV, lenders may be more willing to approve longer repayment periods. 

Overall, maintaining a good LTV ratio for home loan can help you secure better interest rates, longer tenures, and make loan repayments affordable.

Conclusion

Now that you know the LTV meaning, what is LTV in home loan and its implications on housing finance, you can apply for home loan at Tata Capital to receive an ideal LTV ratio.

We are one of India’s most reliable lending institutions, offering attractive LTV ratio for home loans. Our housing finance options ensure that you get competitive home loan interest rates along with a speedy disbursal of funds and flexible repayment terms.Click here on our website to check out your home loan eligibility criteria and apply today!

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FAQs

What is the maximum LTV ratio allowed by RBI for home loans?

 

The RBI has set some maximum LTV for home loan limits based on property value. For homes costing up to ₹30 lakh, lenders can offer up to 90% LTV, for properties between ₹30–75 lakh, the limit is 80%, and for properties above ₹75 lakh, it is at 75%.

How does a higher LTV ratio affect my home loan interest rate?

 

A higher LTV ratio for housing loan means the lender is financing a larger portion of the property value, which increases their risk. Then, due to this added risk, lenders often charge slightly higher interest rates. Lower housing loan LTV ratios make loan interest rates more favourable.

Can I get a home loan with an LTV ratio above 90%?

 

LTV for housing loan above 90% is rare. Some banks may allow it for low-value properties or specific schemes, but even in these cases, approval is limited and usually comes with higher interest rates. It’s a good idea to work on your LTV ratio home loan.

What documents prove property value for LTV calculation?

 

Lenders use some documents to assess property value for LTV in home loan calculation. These include the sale or title deed, approved building plans, property tax receipts, occupancy or completion certificate, encumbrance certificate, utility bills, and identity and address proof of the borrower.

How does LTV differ for under-construction vs ready-to-move properties?

 

RBI housing loan LTV limits are the same for both under-construction and ready-to-move homes. However, lenders often offer lower LTV in home loan for under-construction properties. This is due to delay and completion risks, and applies especially if the project lacks some compliance criteria, or has weak developer credibility.

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