Loan to value ratio means Loan amount disbursed by the bank proportionate to the property value.LTV ratio is calculated by dividing the amount borrowed by the appraised value of the property, expressed as a percentage. For example, if you buy a home appraised at Rs.1 Crore for its appraised value and make a Rs.20 lac down payment, you will borrow Rs.80 lac resulting in an LTV ratio of 80% (80,00000/100,00000).
Loan to value ratio= Loan amount/appraised property value
In order to boost demand for low-cost housing loan (residential housing) sector RBI on October 10, 2015, reduced the risk weight for individual housing loans up to 75 lakh based on the Loan to Value ratio.The reduced risk weight would relax making the provisions on individual housing loans absorb any losses arising from the credit risks quantified under above methods. Therefore this move of reduction in risk weight (%) with revised Loan to Value ratio (LTV ratio) is expected to translate into cuts in lending rate on various categories of loan, as banks are relieved from making higher provisions on account of higher rn risk weight (%). The Loan to Value (LTV) ratios and risk weights for individual housing loans sanctioned on or after June 7, 2017 are fixed by RBI are as under:
| Outstanding Loan on or after June 7,2017 | LTV ratio(%) | Risk weight (%) | Standard asset provision(%) |
| Up to Rs.30 lakh | < 80 | 35 | 0.25 |
| Up to Rs.30 lakh | > 80 and < 90 | 50 | 0.25 |
| Above Rs.30 lakh and up to Rs.75 lakh | < 80 | 35 | 0.25 |
| Above Rs.75 lakh | < 75 | 50 | 0.25 |
| Outstanding Loan
on or before June 6,2017 |
LTV ratio(%) | Risk weight (%) | Standard asset provision(%) |
| Up to Rs.30 lakh | < 80 | 35 | 0.25 |
| Above Rs.30 lakh and up to Rs.75 lakh | < 75 | 35 | 0.25 |
| Above Rs.75 lakh | < 75 | 75 | 0.25 |
