Loan-to-Cost Ratio (LTC)

Search Dictionary

Definition of 'Loan-to-Cost Ratio (LTC)'

The loan-to-cost ratio (LTC) is a measure of how much a borrower is borrowing relative to the value of the property they are buying. It is calculated by dividing the amount of the loan by the appraised value of the property. For example, if a borrower is borrowing $200,000 to buy a house that is appraised at $250,000, their LTC would be 80%.

The LTC is an important factor in determining the interest rate that a borrower will be offered. Lenders typically charge higher interest rates on loans with higher LTCs because they are considered to be riskier. This is because borrowers with higher LTCs are more likely to default on their loans if the value of their property decreases.

The LTC can also affect the down payment that a borrower is required to make. Lenders typically require borrowers to make a down payment of at least 20% of the purchase price of the property. However, borrowers with lower LTCs may be able to get away with making a smaller down payment.

The LTC is a useful tool for borrowers to use when comparing different loan options. It can help borrowers to understand how much they are borrowing relative to the value of the property they are buying and how this will affect the interest rate they will be offered.

In addition to the LTC, there are a number of other factors that lenders consider when determining the interest rate on a loan. These factors include the borrower's credit score, debt-to-income ratio, and employment history. Borrowers should be sure to discuss all of these factors with their lender before they apply for a loan.

Do you have a trading or investing definition for our dictionary? Click the Create Definition link to add your own definition. You will earn 150 bonus reputation points for each definition that is accepted.

Is this definition wrong? Let us know by posting to the forum and we will correct it.