There is much technical terminology associated with loans and mortgages as well. Do you intend to purchase a house and finance it with a housing loan? There are several terms you should know and will probably come across during this process. The loan-to-value, or LTV, is crucial since it will tell you how much funds you’ll need in savings or payout to qualify for a home loan.
A vast majority of potential homeowners will eventually use some form of housing loan to pay for their new home. Taking a loan offers several advantages in addition to financial assistance. These are tax breaks, preserved savings, and raised credit scores.
Still, up to 90% of the price of the property may be funded by lending institutions. The applicant is required to pay the remaining balance as a down payment. The LTV ratio refers to the portion of the home’s valuation that the financial institution funds. Eligibility refers to the maximum loan amount that a borrower is allowed to borrow.
Let’s take a closer look at a loan-to-value ratio’s definition, functioning, and significance to gain a better understanding of this.
The Ratio of Loan-to-Value, or LTV, in a Housing Loan:
The percentage of the value of a property that a financial organization such as a bank can give to a buyer is known as the LTV ratio in home loans. You have no chance to get a loan for the entire cost of your property purchase. Lenders are not allowed to lend or finance the entire property value.
Before authorizing a home loan, banks and other financial firms will look at the loan-to-value ratio (LTV) to make sure they don’t lend more than the property’s true value and don’t go over the allowed LTV for the loan type.
The ratio of the loan sum that an applicant is entitled to take out to the entire market value of the property of their choice is known as the LTV.
The formula that is used is:
LTV Ratio on a Home Loan = Amount Borrowed / Property Value x 100
As an Example
The loan-to-value ratio (LTV) is 75% if you buy a house for 1 crore and the lending institution lends you 80 lakh.
Or
The largest loan sum you can get is Rs. 70 lakh. This is the instance when your bank’s LTV ratio is 70% and you want to purchase a house for Rs. 1 crore.
Top Home Loan Highlights 2024
Bank/Institution | Loan Amount | Loan Tenure | Rate of Interest | CIBIL Score | Processing Fees | Foreclosure Fees |
HDFC Bank | 5.00 Lacs and above | 5 Years – 25 Years | 8.45% – 10% | 650 or above | 0.5% – 1% | 1% – 2% |
Kotak Bank | 20.00 Lacs and above | 5 Years – 20 Years | 8.75% – 10% | 700 or above | 0% – 0.25% | 1% – 2% |
Bank of India | 10.00 Lacs and above | 5 Years – 30 Years | 8.5% – 10.75% | 675 or above | 0.25% – Rs.10000 | 1% – 2% |
Canara Bank | 10.00 Lacs and above | 5 Years – 30 Years | 9.25% – 13.8% | 675 or above | 0% – 0% | 1% – 2% |
Aavas Housing | 25.00 Lacs – 5.00 cr | 5 Years – 30 Years | 9.9% – 18% | 650 or above | 1% – 1.5% | 1% – 2% |
Bajaj Housing Finance | 5.00 Lacs – 75.00 cr | 5 Years – 25 Years | 8.45% – 10% | 650 or above | 0.2% – 0.5% | 1% – 2% |
PNB Housing | 5.00 Lacs – 20.00 cr | 5 Years – 30 Years | 8.75% – 14% | 625 or above | 0.25% – Rs.10000 | 1% – 2% |
Shri Ram Housing Finance | 10.00 Lacs – 1.00 cr | 5 Years – 20 Years | 11.5% – 13% | 650 or above | 1% – 1.25% | 1% – 2% |
We Rize Home Loan | 5.00 Lacs – 75.00 Lacs | 5 Years – 20 Years | 10% – 18% | 650 or above | 0.5% – 1% | 1% – 2% |
Mahindra Finance | 3.00 Lacs – 75.00 Lacs | 5 Years – 25 Years | 9% – 15% | 650 or above | 1% – 3% | 1% – 2% |
Capri Global Bank | 10.00 Lacs – 1.50 cr | 5 Years – 25 Years | 9.5% – 15% | 650 or above | 1.25% – 1.5% | 1% – 2% |
Tata Capital | 30.00 Lacs – 7.00 cr | 10 Years – 30 Years | 8.6% – 11% | 750 or above | 0.2% – 0.5% | 1% – 2% |
Aditya Birla Home Loan | 25.00 Lacs – 25.00 cr | 5 Years – 25 Years | 8.9% – 11% | 675 or above | 0.5% – 1% | 1% – 2% |
Piramal Finance | 30.00 Lacs – 5.00 cr | 5 Years – 25 Years | 10.5% – 14% | 650 or above | 1% – 1.5% | 1% – 2% |
Satin Housing | 5.00 Lacs – 1.00 cr | 5 Years – 30 Years | 11% – 18% | 700 or above | 2.5% – 3% | 1% – 2% |
Indiabulls Finance | 20.00 Lacs – 5.00 cr | 5 Years – 25 Years | 9.4% – 10% | 675 or above | 0.5% – 1% | 1% – 2% |
Federal Bank | 50.00 Lacs – 20.00 cr | 5 Years – 25 Years | 8.5% – 10% | 675 or above | 0.5% – Rs.13000 | 1% – 2% |
IDFC Bank | 10.00 Lacs – 5.00 cr | 1 Years – 30 Years | 8.85% – 9.25% | 680 or above | 1% – 1.5% | 1% – 2% |
ICICI Bank | 50.00 Lacs and above | 5 Years – 30 Years | 8.6% – 10% | 700 or above | 0.25% – 0.5% | 1% – 2% |
Axis Bank (Asha Home Loan) | 5.00 Lacs – 1.00 cr | 5 Years – 30 Years | 9.9% – 14% | 700 or above | 0.5% – 1% | 1% – 2% |
Yes Bank | 50.00 Lacs – 10.00 cr | 5 Years – 35 Years | 9.4% – 10.5% | 700 or above | 0.25% – 1% | 1% – 2% |
Yes Bank (Small Segment) | 5.00 Lacs – 1.00 cr | 5 Years – 30 Years | 9.9% – 11% | 680 or above | 1% – 1.25% | 1% – 2% |
Standard Chartered | 25.00 Lacs – 25.00 cr | 5 Years – 25 Years | 8.5% – 10% | 700 or above | 0.5% – 1% | 1% – 2% |
Jana Small Finance Bank | 5.00 Lacs – 3.00 cr | 5 Years – 20 Years | 10.5% – 13.5% | 650 or above | 1% – 1.5% | 1% – 2% |
DCB Bank | 30.00 Lacs – 3.00 cr | 5 Years – 25 Years | 9.75% – 14% | 650 or above | 0.5% – 1% | 1% – 2% |
SBI Bank | 10.00 Lacs and above | 5 Years – 30 Years | 8.5% – 10.4% | 650 or above | 0% – Rs.10000 | 1% – 2% |
Bank of Maharashtra | 10.00 Lacs and above | 5 Years – 30 Years | 8.5% – 9.65% | 675 or above | 0.25% – 0% | 1% – 2% |
Indian Bank | 10.00 Lacs and above | 5 Years – 30 Years | 8.5% – 10.4% | 675 or above | 0.25% – 0% | 1% – 2% |
Union Bank of India | 10.00 Lacs and above | 5 Years – 30 Years | 8.5% – 10.8% | 675 or above | 0% – Rs.15000 | 1% – 2% |
Central Bank of India | 10.00 Lacs and above | 5 Years – 30 Years | 8.5% – 10.4% | 700 or above | 0% – Rs.20000 | 1% – 2% |
Bajaj Finserv | 20.00 Lacs – 15.00 cr | 5 Years – 40 Years | 8.5% – 10% | 700 or above | 0.2% – 0.5 |
LTV Ratio’s Function in Defining Eligibility
The most suitable loan amount may be determined online with a home loan eligibility calculator. Experts generally recommend checking through online calculators. The suitable housing loan amount is suggested by taking into account the applicant’s earnings, financial commitments, property cost, down payment, and other considerations.
Advantages and Disadvantages of a High LTV Ratio
A home loan with a high loan-to-value ratio offers the advantages of a larger loan amount while requiring the borrower to make the fewest out-of-pocket payments.
Drawbacks to Choosing a High LTV
The main benefit for an applicant with a higher LTV ratio is a large reduction in the required down payment. But because the loan amount is larger, the EMI amount goes up. On the other hand, a lower LTV ratio necessitates a larger down payment. That does, however, keep the EMI amount smaller and lessen the financial strain of the loan. The most helpful online tool for calculating EMI amounts for various loan terms is a home loan EMI calculator.
What LTV Ratio Is Best?
A small cost-benefit analysis dependent on the borrower’s financial circumstances and a follow-up on the necessary house loan documentation are crucial. This is for determining the eligibility and LTV ratio of a home loan. Remember that the required down payment decreases in proportion to the loan eligibility, and vice versa. Greater loan amounts will result in longer loan terms or higher interest rates. Thus, smaller loans will have smaller EMI payback amounts.
To get a loan with the appropriate LTV ratio, home loan interest rates are also very important. It just makes sense to take out less by making a larger down payment if the interest rates are higher. The borrower must choose a lower LTV if they have the money to make a larger down payment.
If funding is less, however, choose a greater loan-to-value ratio to get a larger loan.
Depending on your current demands, you might select a greater LTV and a larger loan amount. If you have additional money, you can always pay back the borrowed amount early. When an individual takes out a housing loan, there won’t be any prepayment penalties. Before asking for a housing loan, it is advised that you review the pre-payment conditions and requirements with the relevant lender.
RBI’s LTV Guidelines
The loan-to-value (LTV) ratio for banks and housing finance companies (HFCs) has been set by the Reserve Bank of India. The RBI has set 90% for house loans up to Rs. 30 lakh, 80% for financing between Rs. 30 lakh and Rs. 75 lakh, and 75% for loans exceeding Rs. 75 lakh.
Loan Slab | LTV Ratio |
Up to Rs. 30 Lakh | 90% of the property value |
Rs. 30 Lakh to Rs. 75 Lakh | 80% of the property value |
Exceeding Rs. 75 Lakh | 75% of the property value |
What Makes a Lower LTV Ratio Preferable?
It Makes You More Fit to Apply for a House Loan
The final LTV ratio is determined by the lender’s evaluation of the applicant’s credit risk. Additionally, it depends on the regulatory caps set by the RBI according to the property value. For applicants with reduced credit risk, banks and NBFCs offer greater LTV ratios. For those with riskier credit profiles, they offer lower LTV ratios.
Hence, if a lower LTV ratio is provided by the lender, applicants with higher credit risk will accept it. By doing this, they will be paying more for the down payment on a house. This will raise the applicants’ eligibility requirements for a home loan and lessen the likelihood that a lender will suffer a loss in the event of a loan default.
Supports Getting Home Loans with Reduced Interest Rates
A house loan’s interest rate may be determined by a lender using the LTV ratio. Candidates with lower LTV ratios represent a smaller credit risk to lenders. They offer lower interest rates to them. Furthermore, smaller loan amounts resulting from lower LTV ratios can greatly cut your total interest costs.
Therefore, applicants with a large enough excess need to choose lower LTV ratios. They shouldn’t, however, risk their assets, emergency savings, or investments made toward achieving your important financial objectives in the process. By liquidating them, applicants might have to take out loans with higher interest rates in the future to achieve the same financial objectives.
LTV and Combined LTV
Even if you now know what a home loan’s LTV means, it’s crucial to comprehend the combined LTV as well. All secured debts against the property are divided by the combined loan-to-value (LTV). When multiple loans are made against one asset or property, it is computed. The primary distinction between LTV and combined LTV is that the former computes the ratio of each loan to an asset, while the latter computes the ratio of all loans to an asset.
Bottom Line
When it comes to home loans and real estate investments, the LTV ratio matters. It determines your borrowing limit based on the property’s worth. Additionally, a lower LTV ratio indicates less risk and the possibility of better loan terms. It has an impact on refinancing, developing home equity, and loan acceptance.
A lower LTV ratio lowers the default risk for investors. Your ability to manage and comprehend the LTV ratio will help you reach your investing and homeownership objectives.