The Loan-to-Value (LTV) ratio is a measure of a loan's size in relation to the value of the asset purchased with the loan. The LTV ratio can be calculated by dividing the loan amount by the value of the asset's value. A higher LTV limit indicates that the borrower owes a high percentage of the asset's value, compared to a lower LTV limit that represents a comparatively smaller loan. In Singapore, the LTV ratio is commonly used in home and car lending.
Table of Contents
What is the Loan-to-Value (LTV) Ratio?
The LTV ratio is a way for borrowers and lenders to assess the relative size of a loan. By dividing the loan balance outstanding by the asset's value, it is clear how much of the asset is being financed by debt. It is also a measure used by lenders to assess the relative risk associated with loans of different sizes. For example, a higher LTV ratio typically represents a higher risk, as the borrower owes a higher percentage of the asset's total value. For instance, a borrower with a LTV ratio of 45% on a home loan owes a smaller percentage of their home's value compared to a borrower with a LTV ratio of 75%. Therefore, borrowers with lower LTV ratios are theoretically less likely to default on their loans.
In Singapore, LTV ratios are commonly used for assessing both car and home loans. Furthermore, there are regulations for lenders based on maximum LTV ratios for car loans and housing loans. As a borrower, it is important to be aware of these limits when planning to purchase cars and homes.
How to Calculate LTV
It is relatively simple to calculate the LTV Ratio. All that you must do is divide the loan amount by the price of the asset. For example, if you are approved for a S$100,000 loan that you will use to purchase a S$300,000 flat, your LTV will be 33% (S$100,000 divided by S$300,000).
How to Calculate the Loan-to-Value (LTV) Ratio
- Loan Amount ÷ Asset Price = Loan-to-Value (LTV) Ratio
- Loan Amount: S$100,000
- Home Purchase Price: S$300,000
- LTV: 33%
LTV for Home Loans
Housing loans are essential financing tools for many homeowners. The Loan-to-Value (LTV) ratio is most often used to measure the size of a housing loan before it is approved. For example, the total amount that home loan applicants are able to receive is limited based on LTV limits on home loans. There are a number of factors that influence the LTV ceiling for you home loan. For example, the maximum loan size that you can receive is based on the number of housing loans that you currently hold, your age and the loan tenure.
It is important to understand these limits, as they will dictate your required down payment and how expensive of a home you will be able to afford. For example, if you are purchasing your first home you will be allowed to use a loan of up to 75% of your new home's purchase price. This means that you will have to make a down payment of at least 25%. The table below summarises the LTV limits for housing loan borrowers in Singapore.
|1st Housing Loan||2nd Housing Loan||3rd Housing Loan|
|LTV Limit: Individual Borrowers*||75%||45%||35%|
|LTV Limit for tenure of 30 years (25 for HDB) or if borrower's age is greater than 65 at end of loan||55%||25%||15%|
|LTV Limit: Non-Individual Borrowers||15%|
While making a larger down payment to meet a lower LTV ratio can require more cash upfront, it actually tends to save borrowers money in the long run. This is because these borrowers correspondingly begin with smaller loan balances and pay less interest over the tenure of their loan.
LTV for Car Loans
Given the high price of vehicles in Singapore, car loans are an important product for many drivers. For this reason, the Loan-to-Value ratio is also relevant to these consumers. The Monetary Authority of Singapore (MAS) restricts the maximum car loan size that banks can offer based on maximum LTV limits. For example, loans for vehicles that are worth more than S$20,000 can only be purchased with loans that represent 60% or less of the cars open market value (OMV). On the other hand, cars that are worth less than S$20,000 can only be purchased with loans of 70% or less of the vehicles OMV.
|Open Market Value||Maximum LTV|
|Less than or equal to S$20,000||70%|
|More than S$20,000||60%|