Definition
Loan-to-Value (LTV) Ratio
LTV is the proportion of an asset's value that a lender is willing to finance through a loan.
The Loan-to-Value (LTV) ratio expresses the loan amount as a percentage of the asset's value. For a home loan, a lender financing most of the property's value means a high LTV, and you fund the rest as a down payment. The RBI caps maximum LTV for home loans, with stricter limits on higher-value properties.
A lower LTV (larger down payment) reduces the lender's risk, can fetch you a better interest rate, and means you owe less. A higher LTV needs less upfront cash but increases borrowing and interest cost.
LTV also applies to gold loans, loans against property and securities, each with its own regulatory ceiling, since lenders keep a margin to protect against a fall in the collateral's value.
Related terms
- Secured vs Unsecured LoanA secured loan is backed by collateral the lender can seize on default; an unsecured loan has no collateral and relies on your creditworthiness.
- Gold LoanA gold loan is a secured loan where you pledge gold jewellery or coins as collateral to borrow money quickly.
- Loan Against Property (LAP)A loan against property is a secured loan where you mortgage residential or commercial property to raise funds for any purpose.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.