What does LTV mean?

Lenders use the LTV ratio to work out how much risk they’re taking on when they approve a secured loan. They compare the loan amount to the property value and use the percentage figure when assessing a mortgage application. 

If you have a small down payment, you’ll have a higher LTV, which can make it more difficult to get a loan. But if you have a large down payment, there’s less risk to the lender as you'll be borrowing less, so you’re more likely to get approval – and possibly get a better interest rate.

Find out more: Mortgages

For example, you want to buy a property valued at AED1,000,000 and you have a down payment of AED200,000. You’d need to take out a loan of AED800,000. 

Your LTV would be (800,000 / 1,000,000) x 100 = 80%

Explore: Home loan repayment calculator

If you already have a mortgage and are considering borrowing more on it, your remortgage deal will need to reflect the new LTV. 

To work this out, you’ll need the current appraised value of the property and the amount you still owe on your home loan. The more home equity you have, the lower the LTV ratio. 

Let’s say your property is now valued at AED1,200,000 and you want to remortgage for AED900,000. The formula would be (900,000 / 1,200,000) x 100 = 75%

Transferring from one lender to another lender may get you a better deal. However, taking out a loan on a fully paid property doesn’t have this advantage.

Find out more: Transfer your balance

The rule of thumb is the lower the LTV ratio, the better. 

While it can vary according to the lender, an LTV ratio of under 80% is generally considered less risky when applying for a mortgage or remortgage. A lower LTV ratio can also mean more favourable interest rates and loan conditions as there’s less risk to the lender.

Here are some ways you can bring down your LTV ratio:

The LTV ratio is used by lenders when deciding on your mortgage application and mortgage amount.

Lenders typically have maximum LTV ratios that they’re willing to accept, so it helps to work out your LTV before starting your home loan application. 

Understanding the LTV can also reveal how much equity you hold in your property, which can help with financial planning. It shows how much you’d have left after selling your home and paying off your mortgage. 

Explore: Types of home loans

Having a low LTV means you’ll be more likely to save on interest. You can use these savings towards other costs that come with buying a property, such as legal fees and moving costs. 

Remember there are other factors that can influence your mortgage application, like your credit score, loan type, loan term, and type of property.