What is LTC and LTV in credit?

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What do LTC and LTV represent in credit?

The Loan-to-cost (LTC) and Loan-to-value (LTV) are two ratios used in bank financing, most common in real estate loans. Both measures assess the risk of a loan.

The LTC is a measure that compares the value of a loan with the acquisition value of the real estate project. In other words, LTC calculates the amount of money that a lender is willing to lend to a developer in relation to the construction cost of the project.

LTV is the measure that compares the loan value with the property project evaluation value. This corresponds to the ratio between the amount financed by a bank to purchase the property, and the appraised value of the house (if the appraisal value is below the purchase value, the lower value is considered).  

Since banks do not lend 100% of the purchase value of a property, and the client has to pay a portion using their own capital, the LTV represents the financing guarantee ratio. The financial conditions for the loan are regulated (more favorable) the lower the LTV to obtain the best conditions associated with your financing, considering that the property to be acquired will serve as collateral for the bank if the borrower default on the home loan.

Currently, according to the rules of the Bank of Portugal (BdP), the limit to LTV in mortgage credit, is 90% in the case of own and permanent housing credit and 80% in mortgage-backed credit or similar for other purposes (secondary housing).

However, this is the recommendation of the BdP so that financial institutions do not take on too much risk, but banks can decide to lower the maximum percentage they lend.

In order to access the largest number of bank offers for your credit, and access the best conditions and LTV limit, contact a credit intermediary. The agents of Poupança no Minuto will present you with the different simulations, taking care of all the bureaucracy and obtaining the most suitable proposal for your needs!