What is LTV in the case of LAP? How is it determined?

Applying for a Loan Against Property offers you substantial funds without end-use restrictions. The funds available majorly depend on the LTV offered by the lender. Wondering what is LTV? The loan-to-value ratio, or LTV, is a crucial determinant of the total loan amount you can borrow from a lender against the property kept as collateral. LTV calculation is essential for both borrowers and lenders. Read on to have a vivid understanding of the concept of LTV for Loan Against Property and its calculation. 

What is a Loan Against Property?

When a borrower takes a Loan Against Property, they offer their property as collateral to the lender. However, the borrower remains the rightful owner of the mortgaged property and can continue to use it as long as they repay the loan amount in full. Once the entire loan amount is repaid, the lender releases the mortgage on the property, and the borrower regains full ownership of it.

What is Loan-to-Value?

LTV for Loan Against Property is the maximum loan amount you can borrow against the current market value of the property you're mortgaging. Generally, in the case of Loan Against Property, the loan-to-value ratio falls between 40-75% of the mortgaged property's market value. However, some lenders even offer up to 90% financing to get an edge over their competitors.
Before approving a Loan Against Property, lenders assess the LTV ratio. This helps them to avoid ending up lending an amount higher than the actual price of the property. So, a higher LTV may discourage your lender from lending you the money, whereas, you can access better loan terms with competitive LAP interest rates with a lower LTV ratio. 

How to Calculate the Loan-to-value Ratio?

You can calculate LTV for Loan Against Property manually in 2 simple steps. Read below to learn how: 

• Step 1: Divide the amount you have borrowed or the principal loan amount by the market value of the mortgaged property. 
• Step 2: Multiply the result of step 1 with 100, and the LTV ratio will come in %. 

Therefore, LTV ratio (%) = (Amount borrowed/value of property) X 100

Illustration to Calculate Loan-to-Value Ratio

If the market value of your mortgaged property is ?1 Crore and the Loan-to-Value Ratio is 60%, the principal loan amount will be ?60 Lakh (60/100 X ?1 Crore). 

How to Calculate Loan-to-Value Ratio with LTV Calculator?

LTV Calculator is an online tool that determines the ratio of the amount you are eligible to borrow against the appraised property value. Follow the 3 steps below to calculate your property's LTV more simply and easily: 

• Step 1: Click on the “LTV Calculator”, and select the property type. 
• Step 2: Enter the estimated market value of the property you are planning to keep as collateral. 
• Step 3: Click on “Calculate” and you can check the maximum loan amount obtainable against the value of your property. 

ALSO READ :- How to Avail Loan Against Residential Property?

4 Factors That Impact the Loan-to-Value Ratio

While a higher LTV ratio results in a lower loan amount or higher rates of interest, a lower LTV increases your loan approval chances. So read the points below to understand what factors you should consider before applying for a Loan Against Property:
1.    Property Type
The applicable LTV for LAP depends on the type of property being financed. Lenders may apply different LTV requirements for residential areas, commercial or investment properties based on the risk factors associated with each property type. 
2.    Value of the Property
The LTV ratio is directly impacted by the appraised value of the mortgaged property. A higher property value leads to a lower LTV ratio. It ensures quicker loan approval and better loan terms and interest rates.  
3.    Down Payment
LTV for Loan Against Property also depends on the size of the down payment made by you. The amount of down payment you make will have an inverse impact on the LTV ratio offered by your lender. A larger down payment means that the loan amount is reduced, resulting in a lower LTV ratio.
4.    Borrower’s Creditworthiness 
One of the other crucial factors that impact the LTV ratio is your creditworthiness. The better your credit score is, the higher will be the LTV ratio. An excellent CIBIL score of 800-900 reflects the credibility of your financial portfolio and. demonstrates your ability to repay loans on time. So, with a strong credit score, you may end up getting favourable loan terms. 

The Importance of Loan-to-Value Ratio

LTV for Loan Against Property is an essential metric in the financing industry that impacts both lenders and borrowers. Each party assesses the LTV ratio against a mortgaged property to estimate the risks or favourable terms involved with the financing option. The reasons why the LTV ratio is crucial to consider while you apply for a Loan Against Property include:
1. Assessment of Risk
Lenders use the loan-to-value ratio to estimate the risks associated with providing you with the funding. A higher LTV suggests that the borrower has less equity in his property, increasing the chances of defaulting on the loan. In that case, lenders may reject your application. 
2. Loan Approval
The LTV ratio is a determining factor for lenders when it comes to approving your loan application. Lenders view lower LTV ratios favourably, as it suggests that the borrower has more equity in their property and the risk of defaulting is less. This may help to increase your chances of loan approval.
3. Interest Rates and Loan Terms
You can qualify for favourable loan terms and lower interest rates with lower LTV ratios. That is because the associated risks for lenders are low. However, with higher LTV ratios, lenders may increase the interest rates or charge additional fees to waive the risk involved. 

How to Apply for a Loan Against Property with Poonawalla Fincorp?

With simple documentation and straightforward eligibility criteria, you can apply for a Loan Against Property in just 5 minutes with Poonawalla Fincorp. Follow the steps below to apply for a seamless online application: 

• Step 1: Click on the ‘Apply Now’ button and you will be redirected to the application form. 
• Step 2: Provide essential details such as your name, DOB, PAN number, employment details, property type and property ownership details. 
• Step 3: Review the provided information to avoid any mistakes, and click on ‘Submit’ to complete the application process. 

Things to Keep in Mind About LTV Ratio When Applying for a Loan

When applying for a Loan Against Property with a certain LTV ratio, it is important to consider certain factors to experience a seamless loan approval. Read the following points to understand what you should keep in mind before applying for a loan:

• Find out the appraised value of your property by appointing a professional appraiser to know the loan amount you are eligible for. 
• A higher credit profile ensures a lower LTV ratio, increasing your chances of loan approval. 
• Try to pay a higher down payment to demonstrate your financial stability, and you may be offered the best loan terms and interest rates. 
• Maintaining a lower debt-to-income ratio can positively impact your credit score, so you can qualify for lower LTV for Loan Against Property. 

To Conclude

While a lower LTV for a Loan Against Property is considered favourable by lenders, your borrowing power decreases, and you are required to pay a larger down payment. However, this is an opportunity for you to strengthen your financial position by availing of lower monthly payments. Hence, you can repay on time without defaulting, significantly improving your credit score. With Poonawalla Fincorp, you can get access to a flexible repayment tenure and competitive interest rates. 

Frequently Asked Questions About Loan to Value Ratio

1.    Does the age of the property affect the LTV ratio? 
Yes, newer properties are likely to get a higher LTV than the older ones. 
2.    How to improve my creditworthiness? 
You can improve your creditworthiness by repaying loans earlier, limiting your credit utilisation ratio, and maintaining a lower debt-to-income ratio. 
3.    Can I determine the appraised value of my property?
While you can, it is always preferable to appoint a professional to perform the calculation for credibility and accuracy.

Disclaimer

We take utmost care to provide information based on internal data and reliable sources. However, this article and associated web pages provide generic information for reference purposes only. Readers must make an informed decision by reviewing the products offered and the terms and conditions. Loan Against Property disbursal is at the sole discretion of Poonawalla Fincorp.
*Terms and Conditions apply