LTV: What is it and how does it influence House Loan?

In the vast world of House Loan there is a term that stands out for its importance: LTV or loan-to-value. But after all, what is LTV and how does it influence the process of obtaining credit to buy a house?

LTV is a measure that compares the value of the mortgage loan to the value of the property being purchased. For example, if you are borrowing €100,000 to buy a house valued at €150,000, the LTV would be 66.67%. This percentage reflects the proportion of the loan value in relation to the value of the property.

Now, what makes LTV so relevant in the home loan process? The higher the LTV, the greater the risk for the bank or financial institution granting the loan. This is because with a high LTV, the borrower has less equity invested in the property, which increases the risk of loan default.

Therefore, a higher LTV may result in higher interest rates, less favorable loan terms or even loan denial. On the other hand, a lower LTV is generally considered less risky for the lender, which can lead to better loan terms, such as lower interest rates and longer repayment periods.

Therefore, when applying for a House Loan, it's essential to keep the LTV in mind and try to keep this value as low as possible.


Go Crédito

GO Crédito is a company specialized in credit intermediation, authorized and supervised by the Bank of Portugal. We provide credit intermediation and consultancy services quickly and effectively.