The loan-to-value LTV ratio is, by essence, the measurement of an individual ‘s loan size as relative to the value associated with the assets purchased along with the loan. This can be through a Singapore home loan, or through property loans.
The LTV ratio can be calculated when the loan amount is divided by the monetary value of the asset itself.
This ratio as a measurement is commonly used in Singapore when it comes to housing loans, or even car lending.
What is the LTV Ratio
The loan to value ratio Singapore is one of the easy methods for lenders and borrowers in Singapore to assess the size of the loan in question.
By getting the total loan balance and dividing it by the value of the asset, it can be certain to know how much of the asset is being aided financially by debt. This LTV is also a measurement method being used by lenders to observe and know about the risks being associated with the loans available that come in different sizes.
For instance, a higher LTV ratio would usually pose a higher risk because of higher value–and also because the borrower owns a then higher percentage of the total value of the asset.
To think of it more vividly, a borrower with a loan to value calculation of 45% of a housing loan owes a smaller percentage of the value of their HDB loan compared to a borrower with a value LTV ratio of 75%. This can therefore let us understand that borrowers with lower LTV are theoretically less likely to end up as defaults with their loans.
In Singapore, LTV is very widely used when it comes to the assessment of your home loan or your car loan. There are regulations set by the government for the lenders based on the maximum LTV ratio for both housing loans and car loans. Now, as a borrower, it is essential to know about these limits, especially if you are planning to purchase a car or buy your first property.
HDB Concessionary Loan Vs Bank Loan
|Features||Bank Loan||HDB Loan|
|Interest Rate||1.95 – 2.8%||2.6%|
|Downpayment||5% Cash||10% Cash/CPF|
Usually, HDB home buyers opt for HDB home loan because the LTV and downpayment is higher. Bank loan interest rates, on the other hand, are usually lower than HDB’s fixed interest.
Also if you are a person who thinks that the financial paperwork is hell, then an HDB flat loan would be best for you.
If you are more keen with the trends on home loans, then the bank loan is something you can opt for.
How to Calculate LTV
Formula: Loan amount / appraised value of the asset = LTV
Calculating your value LTV ratio is essentially simple. All you have to do is to divide the amount of your loan by the purchase price or the declared market value of the asset. Let’s take a look closer into the equation.
For instance, if you have been approved for a one-hundred thousand Singapore dollar loan, and that you will use this to purchase a S$300,000.00 hdb flat, then your housing loan LTV will be at 33 percent. This is because: S$100,000/S$300,000 = 33).
Factors That Can Lower Your LTV
In the country, you will need to know your maximum housing loan borrowers amount first before you actually apply for the loan from any bank or any financial institution.
This will help you determine how much CPF fund you will need to set aside and pay upfront before you commit to any purchase of property in and around the country.
However, know that there are a couple of factors that contribute in lowering your loan to value LTV ratio.
These are the following:
1) Outstanding home loans
Having outstanding home loans is one of the biggest factors out there that could help affect the maximum LTV limitations when it comes to borrowing for your next home loan application.
2) Remaining lease on the property
You will have to be aware that another reason why you could get a lower loan to value LTV is because the remaining lease of the property in the home loan might be too low of value.
Know that properties with a leasehold of thirty to forty years left on their lease might incur an LTV ratio of 60% percentage of the property.
This is because banks might think that the property with such a dwindling lease may incur a less satisfactory collateral due to the market property value that continues to lower toward the end of the property lease.
If this is the case, you should also be aware that you cannot use your CPF funds if you would want to become one of the property buyers for this property.
3) Location and state of the property
The loan LTV ratios may be lowered hugely based on your prospect property location and its condition. A property purchase that is based abroad for instance, may tend to get lower LTV limits, or to those where the red light district is located.
If your prospect property’s value is something that is low, then the property valuation output for LTV will also then be lower.
4) Age and loan tenure
The fourth factor is age and loan tenure. If your tenure exceeds 30 years, or if your loan tenure on your property purchase is something that goes beyond the age of 65, the LTV ratio will be capped. This will also work similarly to those that have exceeded 30 years.
Now given this, if you are a buyer thinking of applying for a property loan at the age of 35, you will have to pay your full amount before you reach the age of 65 so that you can still enjoy a higher LTV ratio. This is why some buyers would choose to buy their second property as long as their monthly income has allowed them to save up for one.
Are you planning to purchase a new property while you are waiting for your current property to be sold? Apply for a bridging loan, it will help you “bridge” the gap between your new property and the sale of your old one.
5) Credit score
The fifth yet not the least factor in determining your maximum loan LTV limit is when the buyer has either a good or a bad credit score, rating, or financial portfolio.
Now, if you have a financial portfolio of having late payments and have been defaulting on your loans in the past (which includes your debt from credit cards), then bank loans might flag you as a credit risk, and will probably give you lower LTV ratios (if not reject your application outright in the first place).
When it comes to making life-changing decisions and buying property in the country, it is important to become aware first about what LTV is, how it works, and how you can work around it.
With the factors and guide questions and answers we have talked about, we hope that you are adequately equipped with all the data and information you need.
Furthermore, whether you need a high-value housing loan to purchase your first ever property, or you’re just looking to refinance your mortgage with a lower interest loan package, Loan Advisor is here to help. Our straightforward loan comparison service does all the legwork for you.