When applying for a mortgage—whether it’s a Home Loan or a Loan Against Property (LAP)
you’ll often hear the term Loan-to-Value (LTV) ratio. But what does it actually mean, and why is it important?
This article breaks down what the LTV ratio is, how it affects your mortgage eligibility, and how to make informed decisions when borrowing against your property.
What is the Loan-to-Value (LTV) Ratio?
The Loan-to-Value (LTV) ratio is a financial metric used by lenders to determine the amount of a
loan relative to the value of the property you’re purchasing or pledging as collateral.
LTV Formula:
LTV (%) = (Loan Amount ÷ Property Value) × 100
Example:
If you’re purchasing a house worth ₹1 crore and your bank allows an LTV ratio of 75%, you can borrow up to ₹75 lakh. The remaining ₹25 lakh must come from your personal funds—often as a down payment.
Why Does LTV Matter?
LTV is a critical factor in mortgage lending, and here’s why:
- Determines Your Loan Amount
Lenders use LTV to set a cap on the loan amount. A higher LTV means you can borrow
more, but you’ll need to meet stricter eligibility criteria. - Impacts Interest Rates
Borrowers with a lower LTV ratio are seen as lower risk, often qualifying for better
interest rates. - Affects Loan Approval
If your LTV is high, lenders may:
● Ask for more documentation
● Offer a lower loan amount
● Require a co-applicant or guarantor
● In some cases, reject the loan
RBI Guidelines on LTV Ratios
To promote responsible lending, the Reserve Bank of India (RBI) has set maximum LTV limits based on the home loan amount:
Loan Amount Maximum LTV Allowed
Up to ₹30 lakh Up to 90%
₹30 lakh – ₹75 lakh Up to 80%
Above ₹75 lakh Up to 75%
For Loan Against Property (LAP), most lenders offer LTVs between 50% and 70%, based on the property type, your profile, and market conditions.
How to Strengthen Your Loan Application
While you can’t directly change the lender’s LTV cap, here’s ow to improve your eligibility and
potentially qualify for a higher loan:
● Increase property value through renovations or upgrades
● Maintain a strong credit score (750+ is ideal)
● Add a co-applicant with stable income
● Reduce existing debt before applying
Final Thoughts
The Loan-to-Value (LTV) ratio is one of the most important aspects of mortgage lending. It influences:
● How much you can borrow
● Your required down payment
● The interest rate you receive
● Your chances of loan approval
Whether you’re purchasing a home or leveraging your property’s value, understanding your LTV ratio puts you in a stronger position to negotiate and plan your finances better.
Need Help with a Mortgage Loan?
At SkillLabs, we work with trusted partners like SBI, HDFC Bank, and Bank of India to provide personalized mortgage solutions. From choosing the right loan to guiding you through the paperwork, we make the entire process smooth and stress-free.
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