What is LTV Full Form in Banking

Loans have many technical terms that can be difficult to understand. One such term is the ‘loan to value ratio’ or the LTV. This page will talk about the LTV full form in banking and what it means.

What is the Loan to Value Ratio?

LTV full form in banking is the Loan to Value Ratio and it is used for loans that have mortgages or collateral. It refers to the value that compares the loan amount to the asset’s value that is being funded. 

According to RBI guidelines, no bank can finance 100% of the value of the property being purchased. The LTV ratio helps banks decide the loan amount based on the price of the property or asset.

Let us dig deeper and learn how to calculate the Loan to Value Ratio and how it affects a loan. Knowing this would help you determine how much money you need to arrange as a down payment to apply for a home loan. 

Loan to Value Ration Formula

The Loan to Value Ratio formula is as follows - 

LTV Ratio = Amount borrowed / Property value X 100 to be expressed as a percentage

Loan to Value Ratio is calculated by dividing the loan amount by the property value and multiplying it by 100. In case, it is a home loan, the loan amount will be the amount you borrow and the property value will be the price of your home or apartment.

For example, if the LTV ratio of your bank is 75%, and you want to buy a property worth Rs.1.5 Crore, the maximum loan amount that you can avail will be Rs.1,12,50,000 according to the formula.

In general, loans with a high LTV Ratio are considered high-risk loans. In such cases, the loan would have a higher rate of interest, and might also need mortgage insurance.

RBI Guidelines Related to LTV

The Lon to Value Ratio offered by banks in India is regulated by the Reserve Bank of India (RBI). A bank is not permitted to lend higher than the LTV that is permitted by RBI.

Here is a general idea of how much loan you can get depending on the price of the property you choose - 

The remaining amount is to be arranged by you as a down payment. These guidelines depict the minimum down payment you need to make, but you can easily pay a higher down payment. By paying a higher amount from your pocket, you can reduce your monthly EMIs and reduce your dependence on debt.

Conclusion

LTV full form in banking is Loan to Value Ratio and it is used by lenders to estimate the risk associated with a loan. It is decided based on the price of the property or the mortgage. 

If you have a lower LTV, your loan can get approved more easily and the terms and conditions can be negotiable. You can achieve a lower LTV by making a higher down payment. You can learn more about down payments by reading this article on home loan down payments.

Most lenders consider 80% as a good LTV and anything lower than that would be better for both you and the lender. If the LTV rises above 80%, the chances of loan approval may be reduced, and you might have to pay a higher interest rate if it gets approved.

What is LTV Full Form in Banking - Related FAQs

Yes, if your credit history is good, you can get a 90% LTV home loan.

According to most lenders, 80% is a good LTV ratio. Anything below that is always considered better.

Banks use a Loan to Value Ratio formula to calculate LTV. It is Amount borrowed / Property value X 100

The LTV ratio is SBI is 90% of the property value. For a home loan between Rs.20 Lakh and Rs.75 Lakh, the maximum LTV ratio in SBI would be 80%.

The LTV ratio is regulated by the Reserve Bank of India (RBI). It is decided based on the loan amount that is to be taken.

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