Explaining the Loan-to-Value (LTV) Ratio

As a potential borrower, you must have a good understanding of what the Loan-to-Value ratio is as it dictates how much you can borrow in Singapore. We break down everything you need to know about this metric regardless of whether you are looking to finance your home or motor purchase.

ValueChampion Editorial Team

by ValueChampion Editorial Team on Apr 16, 2024

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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.

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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. 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.

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How to Calculate LTV

It is relatively simple to calculate the LTV Ratio. All you have to 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 metric 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. In other words, one of the ratios that determine the maximum amount a home loan applicant can borrow is the Loan-to-Value (LTV) ratio. The other notable ratio is the Total Debt Servicing Ratio (TDSR).

There are a number of factors that influence the LTV ceiling for you home loan. 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 how much you need to save for your down payment and how expensive of a home you will be able to afford. As a general rule of thumb, if you are purchasing your first home you will be allowed to get 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 Home Loan2nd Home Loan3rd Home Loan
LTV Limit: Individual Borrowers (Bank Loan)75%45%35%
LTV Limit: Loan tenure of 30 years for private property or 25 years for HDB, or if borrower’s age is greater than 65 at end of loan (Bank Loan)55%25%15%
LTV Limit: Individual Borrowers (HDB Loan)80%
LTV Limit: Non-Individual Borrowers and Shell Companies (Bank Loan15%
Sources: MAS, HDB, accurate as of April 2024
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 end up paying less interest due to the smaller loan amount over the tenure of their loan. For example, if you wanted to buy a home that costs S$500,000, with a LTV of 75% and and interest rate of 3.5%, your loan amount would be S$375,000 and your total interest cost would be about S$188.202. Meanwhile, with an LTV of 55%, your loan amount would be S$275,000 and your total interest cost would be about S$138,014 at the same interest rate, saving you a whopping S$50,000 across the 25 year loan tenure.

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Source: Pexels

LTV for Car Loans

Given the high price of vehicles in Singapore, car loans are an important financial product for many drivers. The Loan-to-Value ratio is also relevant to this group of 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 be purchased with loans of 70% or less of the vehicles OMV. Regardless of price, your car loan is only able to have a maximum tenure of seven years.

Open Market ValueMaximum LTVMaximum Tenure
Less than or equal to S$20,00070%7 years
More than S$20,00060%7 Years
Source: MAS, accurate as of April 2024

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If you are in the market for a mortgage loan to finance your new home, check out our round up of the best home loans in Singapore for all the different types of properties. If you are looking to finance your next car purchase, check out our resources for car loans in Singapore.

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