Decoded: Loan-to-Value Ratio and Its Impact on Home Loan

financialexpress.com:

Buying a home is a major financial decision by people in India. Given the high property prices, a majority of homebuyers take home loans to finance their dream house.

A prospective homebuyer often has to take into consideration several factors including budget, property price, home loan interest rate, tenure, repayment etc. However, they often get confused as to what is the amount of loan they will get when they apply for a home loan? There are many factors that decide what would be your home loan disbursement amount based on your income, eligibility, credit score and existing debts.

One critical factor that plays a pivotal role in determining the feasibility of obtaining a home loan is the Loan-to-Value (LTV) ratio. Let us delve into what the LTV ratio is and how it impacts home loan borrowing.

The recently released report– ‘Happy Homebuyers’ by Bankbazaar.com explains that that LTV is a critical financial metric used in home loans to assess the risk associated with a mortgage. It represents the ratio of the amount of money borrowed through a mortgage (the loan) to the purchase price of the home.

The report further highlights its application in case of home loans. For example, if you take a loan for Rs. 40 lakh for a house valued at Rs. 50 lakh, your LTV ratio is 80%. LTV is governed by RBI’s rules. For low-value properties under Rs 30 lakh, you can borrow up to 90%. But for high-value properties above Rs 75 lakh, you can borrow no more than 75%. This guidance shapes your financial planning since you are required by regulation to pay part of your home purchase out of pocket.

Also Read: RBI keeps repo rate unchanged at 6.5% – What it means for homebuyers?

A lower LTV, often achieved through a larger down payment, can