While banks are making their process easier for people to avail bank loans, one thing that hasn’t changed over the years is the usage of complicated terms. A majority of people do not understand key terms which can play a huge role in the grand scheme of things.
Buying a dream house needs a lot of planning when it comes to financial aspects as the complexities associated with availing home loans involve crucial terms.
Apart from the commonly known terms like down payment, loan eligibility, credit score, etc., one should have basic knowledge about other banking terms as they play a crucial role in home loans. You can also approach trustable property developers in Chennai to help with the process.
In this article, we will discuss the loan to value ratio and its significant impact on home loans.
What is the loan to value ratio?
If person A and B are applying for a home loan individually at a bank, their finances will be narrowed down by the officials, before processing their request. As a result, person A and B will receive home loan approvals in different amounts. Here is where the loan to value ratio comes into play.
What’s in it for buyers?
As a matter of fact, banks do not provide the entire amount as requested by the users. While calculating the loan to value ratio of a person, banks will consider the following factors:
Credit scores:
Credit scores can help borrowers to boost their loan to value while availing home loans.
Flexible EMI payments:
Flexible EMI payment is where borrowers should pay attention. Banks will impose longer plans on you as the interest will also be increased. They also assess the number of loans you already have and process your request based on it.
Assess the quality of a property:
You should also pay attention to the accuracy of a property’s value before buying it. For example, if you assess the value of apartments in Nolambur, most of them will have the same value depending on their class. The banks will assess the properties before granting the loans to eliminate the risks of faulty loans.
Banks follow strict rules when it comes to money lending. Most of the banks have updated their money lending policies especially after the ‘credit crunch’ in 2008. They have altered the rules and reduced the potential risks involved in it. If you want to know more, get in touch with property developers in Chennai, as they will explain in detail the terms.
The higher the loan to value, the less will be the equity in the property. In other words, the bank will be taking more risks while handing over the loan. The banks will also have predefined limits for availing home loans. It depends on certain factors such as,
- Income
- Type of job
- Credit history
- Expenses
These factors are set by the banks to reduce the likelihood nightmare that they are likely to face while lending money. The maximum amount banks will lend can go up to 95% of the property’s value, the rest should be arranged by the buyer.
What is considered a good loan to value ratio?
Most people consider that if you are planning on taking a home loan, it would be better if your loan to value ratio stays above 80%. However, it does not mean that getting home loans with a lesser loan to value ratio will impose interest rates that should be paid all your life. You can straighten things out by paying a huge amount as a down payment after a few years.
Although saving up money to make a huge payment can burn your patience, the efforts will be worthwhile in the long run. Also, you can downgrade your expectations and settle for an affordable house. By compromising on certain factors, you can save a large portion of your home loan. Contact trustable real estate developers in Chennai and check out more properties that will meet your expectations.
How to calculate the loan to value ratio?
The loan to value ratio can be calculated with a simple formula. It can come in handy while requesting a home loan at the bank.
Loan to Value ratio = (Loan amount/assessed property value) * 100
As we discussed earlier, the loan to value ratio will vary based on the person. Property developers in Chennai will help with increasing the loan to value ratio to get benefits. Remember that, higher loan to value ratio is an advantage for the buyer and risk for the banks. So you must do everything properly to gain higher ground.
How much does the Loan to value ratio affect the interest rates?
In short, yes.
Banks calculate interest rates based on the risk factors. Sometimes borrowers with high loan to value ratios will have to get additional insurance on their loan. These complicated terms can differ with banks, so it would be wise to go through the documentation before signing them.
Conclusion:
Investing in real estate can be a great way to improve your portfolio as it will provide significant benefits in the long run. Investment in real estate provides great opportunities to grow your wealth.
While home loans have complicated terms, you can save yourself by being aware of them. The next time you choose to buy apartments from property developers in Chennai, you can stay one step ahead of the line.
