According to a report published in the Times of India, the total number of secured loan disbursals has witnessed a sudden boost in the last few years. With feature-rich advances such as loans against property becoming readily available at competitive interest rates, more individuals are looking to avail this advance.
The application of this advance mandates prospective borrowers to learn about its various aspects- the first and foremost of them being calculation of loan to value ratio. To facilitate this, financial institutions have also introduced online loans to value calculators that can allow individuals to calculate the maximum loan to value ratio of the loan.
Loan to value ratio shows the maximum loan amount a borrower can avail against the property to be mortgaged. This ratio is calculated based on the current market value of the property mortgaged as collateral with the financial institution.
Further, loan to value is also one of the necessary criteria that lenders consider while evaluating the risk factor associated with disbursing a mortgage loan. It therefore makes for one of the most important things you must know about loan against property.
Following is an elaboration of loan to value ratio, its calculation, and how it can affect your loan terms.
What is a loan to value calculator?
This calculator is an online tool that allows individuals to calculate the loan to value ratio offered by a financial institution.
Generally, the loan to value for such advances range between 60% and 75% of a property’s appraised value. This denotes the maximum financing one can avail on the basis of the property being pledged.
This LTV calculator uses a specific formula to compute this ratio. The formula is given by –
LTV ratio = principal amount/ market value of the property
The calculation can be cited with an example –
If the loan amount availed against property is given by Rs. 75 Lakh and the property’s total worth is Rs. 1 Crore, its LTV ratio will be –
Maximum LTV percentage= (Rs. 75 Lakh/Rs. 1 Crore) * 100 = 75%
A loan to value calculator saves individuals from the cumbersome process of calculating the loan to value ratio manually. It is one of the more useful tools offered by financial institutions like Bajaj Finserv which facilitates efficient computation of loan to value ratio.
Additionally, they also provide pre-approved offers that can make availing this advance faster and easier. These offers are available on several financial products, including home loans, personal loans, business loans, etc. You can check your pre-approved offer by providing your name and phone number.
What is the process to use a loan to value a calculator?
First, individuals will have to visit an online calculator page. They will then have to enter the principal amount and property value into the respective fields and click on the “calculate” option.
The online calculator will then automatically provide the ratio that lenders will offer for that particular property.
Why is the loan to value ratio important?
The loan to value ratio plays a crucial role in determining your loan against property terms. Offering a higher loan to value will posit more risk for lenders in case an individual defaults on his/her loan repayments.
Since a greater loan to value ratio means a higher risk to lenders, it can directly affect borrowers in the following ways –
Higher loan against property interest rate
Interest rates are a way through which lenders mitigate their lending risks to borrowers. When a lender takes on higher risk, the interest rate offered on loan becomes automatically higher. In this respect, if the loan to value ratio is higher, the interest rate offered to you will also be higher. Thus, this amongst others is a factor that affects interest rate for LAP.
Reduction of downpayment
A higher LTV ratio implies that an individual will have to make a lower downpayment on their loan against property. But it is advisable for individuals to try and make a higher down payment on their loan as it reduces their repayment liability for the same.
These are the two ways through which the loan to value ratio impacts the loan terms for an individual. Thus, it is one of the aspects that individuals should mandatorily check to ensure that they are well-informed about each term of the advance. Refer to leading vendors for the most beneficial loan terms.