The loan to value ratio is arrived at by dividing the loan amount by the agreement value of the property. To illustrate with an example, if the value of the property is Rs 40,00,000 and the lender is giving you a loan of Rs 36,00,000, the LTV is 90%.
It is an equation that is used by lenders to assess their risk in lending a mortgage to you as a borrower. The purpose of establishing a loan to value ratio from a lender’s perspective to see that it is not lending you more money than what the property is actually worth. As the LTV increases, so does the perceived risk for the lender in case of a default.
While calculating the loan to value, please note that the banks do not include documentation charges in the cost of the property such as stamp duty, registration, etc. RBI has now made it mandatory to exclude such charges from the loan to value of the property. Though this means you will have to cough up a higher down payment, it means you take a smaller loan and pay lesser EMIs. However, a housing finance company may find you up to 90%, including the stamp duty and registration charges of the property