A high LTV means the loan amount you are borrowing is bigger than the required home loan and the lenders might stand to lose more if you default. Lower LTV implies you can put down more money towards your home purchase.
This is considered a good indicator to analyze your loan repayment options and the possibilities of future defaults. To explain the concept in terms of money value derived, the LTV ratio can be defined as the amount that you get after dividing the loan amount by the total value of the property. That means you would need a loan of INR 1. The central banking authority, the Reserve Bank of India, usually sets a criteria for the maximum LTV for various categories of loans.
When evaluating a loan opportunity, LTV ratio becomes an important metric to assess the risk profile of the borrower. It is generally deemed high when the desired loan amount is at or near the appraised asset value.
Higher Interest Rate: The rate of interest offered on home loans plays a vital role for a person deciding on how much they want to set a down payment, and accordingly the LTV. Higher the LTV ratio, higher would be the interest rate. This is because a higher LTV ratio is considered to be relatively risky. Therefore, lower the LTV, the lesser your monthly instalments EMI , and lower the strain on your household budget over the tenure of the home loan.
This is why it makes sense to make a larger down payment rather than going for a higher interest rate. If you have sufficient funds that can be used towards making an initial down payment, it will lower your LTV. In that case, you will save on interest and EMIs and will also shorten your tenure. Generally, a high loan amount means an added cost on your home insurance too.
The cost of the added insurance can be between 0. Though the cost may also vary on various factors, adding an insurance premium to your monthly payments will typically raise your overall monthly EMIs. Insurance is a protection tool for the lender, as well as yourself, in case you are unable to repay the loan in case of any unfortunate event or otherwise.
The Covid pandemic is a great example of how there are events, at times, beyond our control that can have an impact on our regular income. Borrowers who have the means for larger down payment should go for it, as it allows them to save on home loan insurance.
Home Loan Approval: Few set parameters evaluate home loan eligibility for a borrower. These factors include gross monthly income, loan tenure, existing monthly obligations, and LTV ratios.
Every lender makes sure to evaluate the risk level. The riskier your loan evaluated, the harder it becomes for an approval. The higher your down payment, the lower your LTV ratio.
Mortgage lenders may use the LTV in deciding whether to lend to you and to determine if they will require private mortgage insurance. If you have to get private mortgage insurance, it will increase your monthly costs. Be sure to compare the amounts, terms and costs of several loans, including the cost of mortgage insurance if it will be required. Searches are limited to 50 characters. Real Estate Guides. All Taxes. On This Page. Loan-to-Value Calculator EN FR.
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