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Loan-to-value Ratio or LTV is a ratio of the loan amount you can obtain given the market value of your property. Generally, the LTV for a Loan against Property ranges between 40% and 75% of your property’s appraised value. LTV for a Loan against Property tells you the maximum amount of financing you can get based on the property you are pledging. Here, the property is appraised on factors such as its type: commercial or residential, and occupancy.
Upon knowing the maximum loan value you are eligible for, you can use the Loan against Property EMI calculator to determine your monthly outgo, should you apply for the loan. To get started with calculating LTV, enter your desired loan amount and market value of your property in a LTV calculator.
The formula that a loan to value ratio calculator uses to compute your loan’s LTV ratio is:
LTV= Principal amount/ Market value of your property.
So, if the loan amount is Rs. 50 lakh and the property’s worth after valuation is Rs. 1 crore, The maximum LTV= Rs. 50 lakh/ Rs. 1 crore= 50%.
Enter the principal amount and property value into the fields and click on ‘calculate’ in a LTV calculator. For instance, if the loan amount is Rs.1 crore and the property value is worth Rs. 2.5 crore, then enter these figures into the appropriate fields. Click on ‘Calculate’ to know the maximum LTV ratio of the loan, which in this case comes to 40%.
The loan to value ratio is generally higher for a residential property than it is for a commercial property. On average, can expect the LTV ratio to be around 10% higher for residential spaces. However, certain industrial properties can also fetch a high LTV. Moreover, the LTV ratio depends on occupancy status as well. Occupied premises tend to yield higher loan amounts than rented or vacant ones, irrespective of whether it’s a residential or commercial property.
Before settling on the LTV, mortgage loan lenders check parameters like your age, current financial obligations and credit score. The greater the number of working years you have, the better are your chances of getting a large loan amount and a lengthy tenor too. Similarly, you should have a low debt-to-income ratio, under 50%, to get a high Loan against Property comfortably. Your credit score is also of importance as it reflects your credit management abilities. Normally, scores of 750 and above fetch higher LTV ratios and low Loan against Property interest rates as well.
A second mortgage involves pledging a property that is already acting as security for one loan as collateral for a second loan. There are a couple of ways in which you can get a fresh loan using the same property as security. For instance, you can opt for a top-up loan from your existing lender. This is an easy option, especially when your original loan isn’t equal to the LTV ratio you are eligible for. You can also choose to take a fresh Loan against Property from another lender.
Here, the property is treated on a Pari Passu basis, meaning that both lenders can exercise legal rights in case of default, based on the amount lent to you. Loan against Property eligibility terms are more stringent here.
In the case of a second mortgage, you have a cumulative loan to value ratio. Here the principal of both loans is added and then divided by the market value of the property. So, if your initial loan was worth Rs. 50 lakh, your new one is worth Rs. 10 lakh and your property’s appraised value is Rs. 1 crore, then the cumulative LTV ratio is 60%.
Keep this information on LTV ratios handy to make a smart Loan against Property borrowing decision.