Everything You Need to Know About the LTV Ratio

Understanding the technicalities of property financing is essential before committing to a long-term liability. Loan to value meaning refers to the critical metric that determines your borrowing capacity against a specific asset. Whether you are seeking a home loan, a gold loan, or a loan against property (LAP), regulated NBFCs like Hero FinCorp utilize the LTV ratio to quantify lending risk and ensure statutory compliance.

What is the Loan to Value Ratio?

The loan to value ratio is a financial assessment tool that represents the percentage of an asset's value that a lender is willing to finance. In secured lending, it serves as a safety buffer for the institution. By calculating the loan to value ratio, borrowers can estimate their required "margin money" or down payment.

From a risk management perspective, a higher LTV ratio indicates a higher credit risk for the lender. As per RBI Master Directions, LTV caps are strictly regulated to maintain systemic financial stability and prevent over-leveraging in the real estate sector.

How to Calculate the LTV Ratio?

The calculation is straightforward but vital for financial planning. You can use an online LTV ratio calculator or apply the manual LTV ratio formula:

LTV Ratio = ( Total Loan Amount /Appraised Value of the Property) x 100

Example:

Suppose you are buying a property with an appraised value of ₹60 lakh. A lender approves a home loan of ₹45 lakh. The LTV ratio is:

LTV Ratio Calculation:

LTV Ratio = (45,00,000 / 60,00,000) × 100 = 75%

Expert Compliance Note: Per RBI guidelines, "Value" must exclude stamp duty, registration, and other documentation charges to prevent inflated loan to value calculation.

Current RBI Guidelines on Home Loan LTV Ratio

The Reserve Bank of India (RBI) mandates specific ceilings on LTV ratios for individual housing loans to protect both the borrower and the regulated NBFC. The current slabs are as follows:

Factors Influencing Your LTV Ratio

While the ltv ratio is capped by the regulator, your specific offer may be lower based on:

1. Credit Score: A CIBIL score above 725 often qualifies for the maximum permissible ltv ratio.
2. Property Age: Older properties with high depreciation may see a reduced LTV to protect the lender’s recovery interest.
3. Income Stability: Your repayment capacity (FOIR - Fixed Obligation to Income Ratio) must complement the loan to value ratio.

Strategic Choice: Which is Better — Higher or Lower LTV?

• Benefits of a Lower LTV: Opting for a lower ratio (e.g., 60-70%) reduces your monthly EMI burden and often secures a lower interest rate because the lender’s risk is minimized.
• Benefits of a Higher LTV: A higher loan to value ratio reduces the immediate out-of-pocket down payment, allowing you to preserve liquidity for furniture, registration, or emergencies.

Conclusion

Navigating the loan to value meaning is the first step toward a successful home-buying journey. For 2026, borrowers should aim for an LTV that balances low interest costs with comfortable liquidity. Hero FinCorp, as a regulated NBFC, adheres to all RBI mandates to ensure transparent and ethical lending processes.

Frequently Asked Questions

What is the maximum LTV ratio I can get for a home loan?

As per RBI Master Directions, the maximum ltv ratio is capped based on the property's cost:

• Up to ₹30 Lakh: Up to 90%
• ₹30 Lakh to ₹75 Lakh: Up to 80%
• Above ₹75 Lakh: Up to 75%

(Note: These percentages apply to the property value alone and exclude stamp duty and registration costs.)

Can I get a 100% home loan in India?

No. Under current RBI compliance standards, no bank or regulated NBFC can provide 100% financing for a home loan. Borrowers must contribute a minimum of 10% to 25% of the property value as a down payment to ensure a safety margin for the lender.

Does a higher LTV ratio increase my interest rate?

Yes, typically. A higher ltv ratio (like 90%) represents a higher risk for the lender. To mitigate this risk, financial institutions may charge a slightly higher interest rate compared to a loan with an LTV of 70% or lower.

How does property valuation affect my LTV?

The ltv ratio calculation is based on the appraised market value determined by the lender’s independent valuer, not necessarily the agreement value. If the valuer assesses the property at ₹90 Lakh while your purchase price is ₹1 Crore, the 80% LTV will be calculated on ₹90 Lakh, potentially increasing your required down payment.

Can I include stamp duty and registration in the LTV calculation?

No. Since 2015, the RBI has mandated that stamp duty, registration, and other documentation charges must be excluded from the ltv ratio to ensure the loan amount remains strictly proportional to the asset's core value.

Can a high CIBIL score help me get a better LTV?

While a high credit score doesn't allow a lender to exceed the RBI's LTV caps, it significantly improves your chances of getting the maximum permissible LTV within those caps. Borrowers with scores below 700 may be offered a lower LTV (e.g., 70% instead of 80%) due to perceived credit risk.

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