The LTV or loan-to-value ratio applies to both loans against property and home loans. It plays a significant role in determining how much loan amount one can borrow from a lender. In a loan against property, the loan-to-value ratio refers to the ratio of the maximum amount one can borrow based on the current market value of the mortgaged property.
In this regard, borrowers can take help of an LTV calculator, available on most financial lenders’ websites for free. Using this online tool, borrowers can determine the eligible amount and overall EMI.
What is an LTV calculator and how to use it
In terms of loan against property, the loan-to-value ratio refers to the maximum financing that customers can avail of against their mortgaged properties’ market worth. Usually, loan-to-value ratio in LAP ranges between 40%-75% as specified by the lender. However, some lender offers up to 90% financing to beat their competitors.
In this regard, borrowers can take help of an LTV calculator to determine the exact amount they can get from the lender and the overall EMIs. To know how to calculate LTV of a loan against property, go through the formula below:
LTV = (Borrowed principal amount / current market value of your property) x 100
Usually, in the LTV calculator, there are five fields, and they are:
- Property type
- Loan tenor
- Employment type
- Interest rate
- Property value
Nonetheless, following are the simple steps to using a loan-to-value calculator:
Step 1: Visit lender’s official website and seek for LTV calculator
Step 2: Select between a commercial and residential property type
Step 3: Input property’s current market value
You will get the figure of the eligible loan amount instantly after inputting these variables. To receive the EMI amount, interest payment and overall payable amount, borrowers must select a suitable loan tenor in the calculator. Borrowers can also alter the term at their convenience to determine EMI amount that they are comfortable paying every month.
On the other hand, borrowers can also use a property loan EMI calculator to determine the exact EMI value they have to pay against their borrowed amount.
Factors impacting loan to value ratio
Various factors significantly impact the LTV ratio of a loan against property. It may decrease or increase based on these factors. Nevertheless, here are the factors that can affect LTV ratio:
The property type also plays a significant role in determining LTV offered by the lender. Usually, LTV ratio for residential properties is higher than for commercial properties. Borrowers can expect the LTV ratio of residential property to be 10% higher than commercial property. Having said so, it is essential to note that certain industrial properties attract high LTV ratios.
The mortgaged property’s age plays a vital role in determining a loan against property. This is because lenders consider older properties risky and unsafe, and hence, they extend lower loan amounts against them. On the other hand, if the property is well constructed and in a good location, borrowers can grab a better deal from the lender regarding LTV ratio.
Property’s occupancy status
The collateral property’s occupancy status also plays a crucial role in affecting LTV ratio. Usually, occupied premises come with higher LTVs than vacant ones. Moreover, whether the borrower or tenant is occupying the property also impacts the LTV ratio significantly. Therefore, to ensure getting higher LTV, borrowers must mortgage a self-occupied property rather than a rented one.
Borrower’s credit score
Like every other credit facility, borrower’s credit score plays a vital role in a loan against property. If the borrower has a credit score of 750 or above, he/she will be considered a reliable borrower and can avail substantial loan amount. Resultantly, the LTV ratio of loan against property will automatically go up.
Alternatively, to know the exact loan amount one can borrow against his/her mortgaged property, borrowers can take help of a property loan calculator to determine their eligibility.
Other than this, existing borrowers can enjoy the benefit of customised pre-approved offers on a wide range of financing options, such as loan against property, home loans, etc.. To check the pre-approved loan offers, borrowers need to mention their names and contact details.
To conclude, when applying for a loan against property, borrowers must look at the LTV ratio the lender offers. Usually, it is wise to choose a lender offering a higher LTV. In this regard, borrowers can take help of an LTV calculator to learn the eligible loan amount and EMI. However, opting for a lower LTV will ensure availing affordable interest rates from the lender.