Understanding LTV (Loan to Value)

It’s time, you understand LTV (loan to value) Before accessing KPR (Home Ownership Credit) to the bank so that it can be approved quickly.

Submitting a mortgage is not just a matter of light installments or low interest. There are technical factors such as the LTV ratio that greatly affects the loan approval.

Many prospective debtors do not understand the ratio of this loan, so they are confused when the loan is rejected or the amount is below expectations.

In fact, this loan ratio helps estimate how much loan can be approved compared to the value of the house.

If you can understand the loan ratio from the beginning, you can make the KPR submission process more smooth and faster approved by the bank.

Blog Skillife presents a complete discussion that is summarized from various trusted sources, including property sites and online news portals.

Know what is LTV (Loan to Value)?

LTV is the ratio between the amount of loan proposed and the property value used as a guarantee. This ratio is used by banks to assess credit risk.

High LTV means loans close to home value, more risky for banks. Conversely, low LTV shows you are able to pay a larger down payment.

In the mortgage, the loan ratio is the main reference to determine the amount of loan and the amount of the down payment or down payment.

Why is LTV important in submitting a mortgage?

There are several reasons why the loan ratio is the main focus when you apply for a mortgage:

1. Measuring risks for lenders

The loan ratio helps the bank calculate the potential loss if there is a failure to pay for the customer.

The greater the loan compared to the price of the house, the greater the bank’s risk must bear the loss if the house must be sold to close the credit.

2. Determine the amount of the down payment

Through this ratio, you can find out what percentage of the down payment that needs to be prepared. For example, if the LTV limit of the bank is 80%, it means you must provide 20% down payment of home prices.

3. Adapt the Flower Quarter

The loan ratio also affects the interest rate to be given. Usually, a borrower with low LTV will get lighter interest than those who take loans with high LTV.

4. So the reference for the central bank regulation

In Indonesia, the provisions regarding the loan ratio are regulated by Bank Indonesia and apply to all financial institutions. This rule helps maintain the stability of the property sector and prevent systemic bad credit risk.

Factors Affecting LTV

The following things can make your LTV ratio higher or lower:

1. Property value

The bank will conduct an evaluation (evaluation) to the market price of the house you propose. This value will be a reference, not the selling price you see in advertisements.

2. Advance

The greater the down payment you can pay, the smaller the loan ratio. This will increase the opportunity for approval and can ease the interest expense.

3. Purpose of Purchase

Property purchased to be inhabited usually gets a higher loan ratio tolerance than the second house or property for investment.

4. Credit score and financial history

If you have a good credit record, banks can provide more flexibility in terms of loan ratios. Conversely, bad credit records can make the approved loan ratio lower.

5. Bank Internal Policy

Each bank has a standard for the maximum limit of LTV. Some banks offer a loan ratio of up to 90% for the first home, but can be lower for the second or third home.

How to calculate ltv (loan to value)

The calculation formula is simple:

LTV = (Loan Number / Property Value) x 100

Example:

If you want to buy a house for Rp. 700 million and apply for a loan of Rp560 million, then:

LTV = (560 million / 700 million) x 100 = 80%

That is, you need to prepare a down payment of 20% or Rp140 million. This ratio will be the basis of the bank in deciding the amount of credit and other provisions.

Things you need to pay attention to

• If the property value you submit turns out to be lower than the selling price, then the automatic loan ratio will be higher.
• For the first house, Bank Indonesia allowed LTV up to 90-100% depending on the macroprudential policy at that time.
• Although a high loan ratio can make a lighter down payment, you need to be aware of the possibility of a larger interest or a longer tenor (time period).
• Some banks provide fixed KPR interest promos for debtors with certain loan ratios, so make sure you compare offers from several banks before deciding.

Understanding the loan ratio is an important first step before you apply for a mortgage. By knowing how much ratio requested and how to calculate it, you can be better prepared to face the loan approval process.

This ratio is not just a number, but a picture of your financial readiness in the eyes of the bank. So, before starting to fill out the KPR form, make sure you have calculated the loan ratio and consider all other supporting factors.

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