What role does the down payment play in loan-to-value calculations?

The down payment amount is a significant factor in loan-to-value (LTV) calculations. The LTV ratio represents the loan amount in relation to the total asset value. A higher down payment reduces the required loan size.

For example, with a ₹2 crore home purchase and ₹40 lakh down payment (20%), the LTV is:

Loan amount: ₹1.6 crores

Home value: ₹2 crores

LTV = (Loan/Value) x 100 = (1.6 crores/2 crores) x 100 = 80%

A lower ₹20 lakh down payment (10%) means a higher ₹1.8 crore loan and 90% LTV.

The more substantial the down payment, the lower the LTV ratio generally is. Lower LTVs signify that the borrower is better positioned to repay the loan, while high LTVs are riskier for loan providers.