Loan to Value Ratio (LTV): Define, Calculate & Formula

To Value Ratio (LTV) is a term you'll likely encounter if you intend to apply for a home loan or land loan in India. This ratio is essential for figuring out how much loan you can get against the value of your property, whether you're looking at residential apartments, villas, or plots for sale in Chennai.


We'll go over the definition, significance, calculation method, and formula for the Loan to Loan-to-Value this blog.


What is the Loan-to-Value Ratio?

What precisely is the Loan-to-Value Ratio, then? Simply put, it's the portion of the property's value that a bank or other financial organisation can lend money for. The buyer is required to arrange the remaining sum as a down payment.


For instance, the loan-to-value ratio is 80% if you are purchasing a property worth ₹50 L and the bank extends a loan of ₹40 L.


Before we continue, let's clarify the fundamentals — In banking, LTV stands for Loan to Value. It's a crucial indicator that banks and other financial organisations use to evaluate the risk of real estate loans. While a higher LTV ratio indicates the lender is financing a larger portion of the property's value, a lower LTV indicates the lender is taking on less risk.

LTV Meaning in Real Estate Loans

The LTV meaning in property transactions is vital. It impacts your eligibility, down payment, and interest rates. In India, the Reserve Bank of India (RBI) has set certain guidelines for maximum permissible LTV ratios for housing and land loans.


For example:

  • For property loans up to ₹30 lakhs, the maximum Loan to Value Ratio can be up to 90%.
  • Between ₹30-75 lakhs, the maximum LTV is 80%.
  • Above ₹75 lakhs, LTV is restricted to 75%.

If you’re looking for plots to buy, knowing these numbers can help you plan your finances better.


How to Calculate Loan-to-Value Ratio

Now, let’s see how to calculate to Value Ratio. It’s a simple mathematical formula:


LTV Ratio = (Loan Amount ÷ Property Value) × 100


For example: If your loan amount is ₹40 lakhs and the property value is ₹50 lakhs:


LTV = (40,00,000 ÷ 50,00,000) × 100 = 80%


That means the lender is covering 80% of your property’s value.


Loan-to-Value Calculation Formula

Let’s recap the Loan-to-Value calculation formula:


LTV Ratio = (Loan Amount / Appraised Property Value) × 100


This formula is used across banks and NBFCS to assess loan eligibility for homes, land, and commercial properties.


LTV Ratio Formula in Detail

To break down the LTV ratio formula further:

  • Loan Amount = The total amount sanctioned by the bank.
  • Appraised Property Value = The property value assessed by a certified valuer or as per government records.

Always remember that the property’s market value and guideline value (or ready reckoner value) can differ, which might impact your LTV eligibility.


Determine the Loan-to-Value Ratio When Buying a Plot

When purchasing a plot or land, it’s essential to determine the Loan-to-Value Ratio early. Plot loans generally have lower LTV caps compared to housing loans. Most banks offer up to 70%-75% LTV for land purchases.


So, when you are investing, knowing this will help you arrange your down payment and loan documents in advance.


LTV Ratio for Housing Loan

The LTV ratio for housing loans is typically higher compared to plot loans. For affordable housing, LTV can go up to 90%. For premium properties, it decreases to reduces lender risk.


If you plan to purchase a residential plot or a constructed house in Chennai’s suburbs, understanding the applicable LTV bracket is crucial for a hassle-free approval process.


High LTV Meaning

Wondering what a high LTV means? A high LTV means the lender is financing a large portion of your property’s value, say 85%-90%. While this reduces your upfront down payment, it also increases the lender's risk, which could lead to higher interest rates or stricter eligibility checks.


Max Loan to Value Ratio as per RBI

The maximum Loan to Value Ratio allowed in India is guided by RBI norms:

  • Up to ₹30 lakhs: Max 90%
  • ₹30-75 lakhs: Max 80%
  • Above ₹75 lakhs: Max 75%
  • Plot Loans: Typically max 70%-75%

So, whether you're eyeing plots or a villa in ECR, check with your bank about the applicable LTV before applying.

Why LTV Matters When Buying Land or a House

  • Decide Your Down Payment: A higher LTV means a smaller down payment.
  • Impacts Loan Eligibility: Banks prefer lower LTV for higher-value properties.
  • Affects Interest Rates: High LTV loans might attract slightly higher rates.
  • Influences Loan Tenure: Some lenders cap tenures based on LTV slabs.

Understanding the Loan-to-Value Ratio is key when applying for a property loan. It determines how much you can borrow, how much down payment you’ll need, and what interest rate you might get.


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FAQ


It’s the percentage of a property’s value financed by a lender through a loan.
Use the formula: (Loan Amount ÷ Property Value) × 100.
An LTV ratio above 80%-90% is considered high.
Most banks offer up to 70%-75% for plot loans.