Know All About Calculating Loan to Value (LTV)

Recently, the Reserve Bank of India has linked the rationalised risk weightage with LTV for home loans, approved till March 31, 2022. Consequently, it is predicted that these retail loans will account for 35% and 50% risk weightage for LTV more than or equal to 80% and LTV between 80% and 90%, respectively.

Thus, it is likely to benefit both the lenders and borrowers alike and help, especially the borrowers, to acquire a high loan amount against their mortgage property. To experience hassle-free computation, you can also use an online LTV.

Nevertheless, first, you need to know what LTV means and how it works. 

What is a loan to value?

Under the guidelines of RBI, to avail of any mortgage loan, borrowers need to collateralize an asset like gold jewelry, securities, residential or commercial property. However, to reduce the risk of lending against the asset’s value, lenders do not sanction the entire amount equal to such security’s market value. In such cases, the concept of loan to value comes into play. 

For instance, currently, RBI has revised the LTV of loans against gold from 75% to 90% ratio. LTV thus refers to the maximum amount that can be lent against every Rs.100 of a mortgage pledged. 

Lending institutions thus maintain this gap to reduce the delinquency rate. On the other hand, it also indicates that the higher the loan to value ratio, the higher the risk weight attached to the financing option.

Thus LTV makes a vital component for all mortgage loans, including a loan against property. However, before applying for this credit as per their requirements, individuals also need to know how LTV is calculated through a loan to value calculator. 

The process to calculate loan to value

Following is the formula to calculate loan to value in India. 

It is calculated in percentage and the formula used is mentioned below. 

Loan to Value ratio = (Total amount borrowed/ current property value)* 100

Nevertheless, several financial institutions also offer online loan to value calculator to make this calculation prompt and error-free. Following are some of the benefits of using an LTV calculator. 

• Provides accurate results.
• Helps in determining the loan amount.
• Allows arranging for required Down Payment amount.
• Shows result in a few seconds.
• Can be accessed whenever one requires, for free of cost. 

A loan to value calculator thus helps in deriving the result within seconds, expediting the calculation process significantly. Utilizing these tools only makes availing of secured financing options like a loan against property more straightforward. 

Select financial institutions extend pre-approved offers that simplify the loan application process. Besides loans against property, these offers are also available on a range of financial products such as home loans. You can check your pre-approved offer instantly with your name and contact number. 

Nevertheless, to better understand this calculation, individuals also need to refer to some examples. 

Loan to value example

Though a loan against property is different from a home loan in some fundamental functions, you can consider the following example while calculating the LTV of both the advances. It is because their nature of security collateralization is the same, i.e. both are availed against the immovable property. 

Suppose you want to avail financing with residential property collateralization, wherein the property’s value is Rs.10 lakh, and LTV your lender offers is 70%, then the maximum amount you can avail as a loan is Rs.7 lakh.

It also means that you need to make a down payment of up to Rs. (10lakh-7lakh)= Rs.3lakh to avail of the desired loan amount.

Thus, among several things, LTV is a crucial aspect that you need to know before applying for a loan against property in India. Nevertheless, with the help of a loan to value calculator, you can expedite the process of calculation and decide on the mortgage that needs to be pledged.