InvestorQ : How much LTV should one look for?
Suresh Patil made post

How much LTV should one look for?

Ankita Patil answered.
3 years ago

Loan-to-value (LTV) ratio is the proportion of funds that a lender will lend to you based on the value of your property.

When it comes to purchasing a property, buyers generally tend to first look at their own finances, decide how much additional money they would need and then bridge the shortfall through a home loan.

When you go to a lender for borrowing money, you often have an idea as to how much you will require, how much you’ll be able to arrange for yourself, etc.

Thus, there could be situation wherein you want a loan for Rs. 25 lakh, to purchase a property worth Rs. 40 lakh and you approach two financing institutions- A and B.

Let’s say ‘A’ is ready to offer a loan of Rs. 25 lakh at 9% interest rate for a tenure of 20 years, while ‘B’ is ready to offer a loan of Rs. 20 lakh at 8.5% interest rate for the same tenure. In this case, even though the rate of interest offered by ‘B’ is lower, you might prefer taking a home loan from ‘A’ as it will meet your funding requirements better. In contrast, borrowing from ‘B’ would mean that you will have to arrange for Rs. 5 lakh from other sources, thereby increasing your number of borrowers and bringing in uncertainty in to the entire situation.

Experts suggest that if you do not have enough savings to afford a huge down payment, it would be better to opt for a higher LTV.

Irrespective of what you decide, do compare all your options carefully, before deciding on anything. Calculate exactly how much you would need to pay back in either situation and ensure you do a cost-benefit analysis before you sign the dotted line.