Banks have many technical terms which are difficult to understand for everyone. LTV is a term which many people do not know about. LTV full form in banking is loan to value ratio which is often used by lenders. This term is very useful while calculating the loan for any borrower. This blog explains LTV term in detail and how it helps the lenders to calculate the loan.
Summary of LTV ratio
LTV is the loan to valuu ration and it is normally used for loans that have mortgage or collateral. LTV is the ratio in which the loan amount is compared to the value of the asset being funded.
As per the RBI guidelines, no banks are allowed to provide 100% value of the property that is purchased. LTV ratio helps the banks to calculate the right loan amount depending on the value of the asset.
Loans that have a high LTV ratio are high-risk loans. These loans have a high rate of interest require a mortgage insurance as well.
How is LTV ratio important for lenders or banks?
Loan to value ratio helps the banks to provide the right amount of loan based on the asset’s value. This ratio is important in many other ways such as:
- Lenders can assess the amount of risk involved in the transaction with LTV ratio. Higher LTV ratio involves a high risk for the lenders. On the other hand, the lower LTV ratio is safe for lenders.
- Lower LTV ratio helps to get a favorable interest rate.
Final words
Now, you know LTV full form in banking and how LTV ratio affects the loan procedure.This ratio is useful for both lender as well as borrower as it shows the amount of risk involved.
