A Comprehensive Guide on Loan to Value (LTV) Calculator

The loan-to-value (LTV) ratio indicates what portion of the property's value a lender can approve as a loan amount for a borrower. Precisely evaluating an LTV ratio is essential for any lending institution to avoid assuming excessive risks. Borrowers can conveniently determine the loan amount using an online LTV calculator. For a comprehensive understanding of this tool, further details are provided below.

What is the LTV calculator?

An online LTV calculator is a helpful tool that enables users to calculate their EMIs, eligible loan amount, total interest payable on the eligible loan amount, and the principal amount. It also allows users to access their repayment schedule and apply for a loan against property.

What is the LTV calculation formula?

The LTV ratio calculation formula involves two factors: the eligible loan amount and the recent market value of the pledged property. This formula is represented as:

LTV Ratio Formula = (Loan amount / Market value of the property) * 100

For instance, there is a property of Rs.80 lakh valuation and the borrower can avail Rs.48 lakh as loan amount. The LTV ratio can be calculated as [(48,00,000/80,00,000) * 100], resulting in 60%.

Typically, the maximum eligible loan amount varies between commercial and residential properties. The LTV ratio of residential properties is generally high compared to commercial ones.

How to calculate the loan-to-value ratio through the LTV calculator?

Any lending institution offering a loan against property provides an LTV calculator on its official website. Here are the steps on how to calculate a loan-to-value ratio through this tool:

Step 1: Enter the estimated property value, principal amount, and interest rate in the relevant fields.

Step 2: Press the ‘Calculate’ button in the calculator.

The calculator will display the LTV ratio of a loan.

For example, the lending institution has proposed a mortgage loan deal where the property’s value is Rs.80 lakh and they are willing to finance up to Rs.48 lakh. In this case, when a person clicks on the ‘Calculate’ button, the LTV ratio will come out as 60%. 

What is a good loan-to-value ratio?

Lending institutions typically consider an LTV ratio of 80% or lower as ideal for individuals taking out a loan against property. A high LTV ratio, exceeding 80%, may result in higher borrowing expenses, the necessity for private mortgage insurance, or even loan denial. LTVs that surpass 95% are generally considered unacceptable.

What are the factors that affect LTV calculation?

The following are the factors that affect LTV calculation:

Location

The location of a property plays a crucial role in determining its marketability and the resulting LTV ratio. Residential properties in posh neighbourhoods generally command a high loan-to-value ratio compared to those properties in areas with fewer amenities, This principle applies to commercial properties as well.

Property type

Residential properties typically receive higher LTVs compared to commercial properties. In some cases, the difference can be up to 10%. However, certain types of commercial properties may also have high LTVs.

Property age

Older properties tend to have lower market values, leading to lower LTV ratios compared to newer properties.

Many lending institutions offer pre-approved loans to eligible candidates based on their profile. Lenders attach these offers to loan products such as home loans, loans against property, etc to speed the loan approval process. The borrowers must present some details like full name, contact details, and others to check their pre-approved loan eligibility.

By effectively using the pre-approved offers and leveraging the LTV calculator, individuals can secure loans effortlessly. These elements play a vital role in financial planning as they contribute to easing the burden of repayment over the years.