Net Worth & Solvency Glossary · Lending
The loan-to-value ratio (LTV) is the loan amount expressed as a percentage of the value of the asset securing it. It shows how much of the asset's value the lender is advancing.
The rest must come from the borrower. LTV is a rule about the security, not about the borrower's wealth.
LTV = loan ÷ value × 100
The computation
The sum the lender is prepared to advance against this one asset. It is the figure the ratio measures, and the figure that comes down when the value side comes in lower than the borrower hoped.
When a sanction comes in lower than expected, this is usually why.
The gap between the price and the loan is what the borrower must fund from their own money. Finding that out late is what derails a purchase: the ratio fixes how much of the asset's value the lender carries, and everything above it has to be in hand before the deal closes.
For some products the ratio is watched throughout the loan. A gold loan whose security falls in value can trigger a margin call, where the borrower tops up or the lender sells.
Housing loans are not usually re-valued like this. The ratio is tested when the loan is sanctioned, and again if the loan is enhanced, rather than tracked against the property's price month by month.
The asset, not the person
The cap is a rule about the asset, not the person. It exists so that a fall in the asset's value does not leave the loan bigger than the security behind it. Substantial wealth elsewhere may get a better interest rate, remove the need for a guarantor, or help a borderline file. It does not raise the share of that particular property's value the lender will advance.
The ratio looks at one asset and one loan. Nothing the borrower holds elsewhere enters either side of it.
What net worth can do is show that the borrower can fund the rest: the margin between the loan and the price. A net worth certificate for a bank loan answers that question, not the LTV one.
The outer limits
The Reserve Bank of India sets maximum LTV ratios for certain loans, and they differ by product.
The ceiling is set by RBI rules together with the lender's own policy.
A separate ceiling applies, because gold prices move and gold is easily sold.
These are often lent at a lower share than home loans, because the loan is not for buying the property and recovery is harder.
This entry describes Indian lending practice in general terms. Current RBI directions and each lender's policy govern the ratio applied.
Need help with a certificate that uses loan-to-value ratio? See our Net Worth Certificate for Bank Loan.For showing a lender that the margin, the part of the price the loan does not cover, can be funded from the borrower's own position.