21 December 2010
What is Loan to Value Ratio?
What is Loan to Value Ratio??? Home loans are a simple and best way to make your dream of owning a home come true. As the property rates are shooting up it is becoming more and more difficult to own a home in the city. Taking a home loan is the best option of owning a property and enjoying the present while continuing paying for the EMI’s in the later period. The term loan-to-value ratio is often used by government banks or lending institutions.
It is always understood that the loan amount is less than the total value of the house. While applying for a home loan one must understand that some amount of the total value of the house has to be kept prepared beforehand which has to be paid as down payment. Banks offer only certain percentage of amount as loans against the property considered for buying. This ratio or percentage may vary from institution to institution and may also vary for the interest rate applied to the loan amount offered.
The total estimated value of the house or property is calculated by the financial lending institution and then the loan-to-value ratio is calculated. Nowadays many nationalised banks have sealed this ratio as 80% and the rest 20% has to be paid in the beginning by the borrower as down payment. This down payment also comes to a substantial amount as when the flat price is 1 crore then the borrower has to be prepared with 20 lakhs as down payment before applying and getting approval of the home loan.
Increasing property rates and inflation has made banks and lending institutions becoming vary of lending large amounts as home loans and this has also led to many defaulters of the loan. Hence as a precautionary measure most banks have pre-decided the loan-to-value ratio as 80% of the total value of the house or property.
Home Loans-Simplified Facts
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