Whether you’re applying for a mortgage, financing a car, or taking a loan against your equipment or insurance policy, the term Loan-to-Valuation (LTV) often comes up.
But what exactly does LTV mean, and why is it so important? More importantly, why is it a source of confusion for many borrowers?
In this article, we’ll break down the concept of LTV, how it applies across different asset classes, and why valuation — the “V” in LTV — is sometimes the trickiest part.
What is LTV?
Loan-to-Valuation (LTV) is a financial ratio that compares the loan amount to the value of the asset used as collateral.
LTV Formula:
LTV (%) = (Loan Amount / Asset Value) × 100
The LTV ratio helps lenders assess their risk. The higher the LTV, the riskier the loan — because there’s less “equity cushion” if the borrower defaults.
Why LTV Matters
Borrower Perspective: A lower LTV means you may need to fork out more upfront as downpayment.
Lender Perspective: A higher LTV means the lender has less buffer in case the asset value drops or must be repossessed and sold.
Lenders use LTV to decide:
- How much to lend
- Interest rate to charge
- Whether to require guarantors or additional collateral
How LTV Applies to Different Assets
Property
In Singapore, the maximum LTV for a residential mortgage from a bank is 75% (or lower if you have other outstanding loans).
For commercial or industrial property, LTV typically ranges between 70% to 90%.
Valuation disputes are common — buyers may agree on a price, but banks rely on their own appointed valuers.
✅ Tip: Don’t assume the purchase price equals the valuation. You may need to top up the shortfall in cash.
Cars
Car loans in Singapore are subject to MAS regulations, with a maximum LTV of:
-
- 70% for cars ≤ $20,000 OMV
- 60% for cars > $20,000 OMV
- Loan is based on Open Market Value (OMV), not market selling price.
✅ Pitfall: Overpaying for a vehicle at a dealership can mean higher upfront costs if the bank values it lower.
Equipment or Machinery
LTV typically ranges from 70% to 90%, depending on the asset’s age, condition, and resale value.
Valuation is often done by the lender or third-party valuer — especially for heavy machinery or medical tools.
✅ Note: Depreciation plays a huge role here. Equipment loses value quickly, which affects your loan quantum.
Insurance Policies
Loans against insurance policies are based on surrender value, not total coverage.
LTV may go up to 70–90% of the policy’s surrender value.
✅ Caveat: You must keep the policy in force. Lapsed policies or early withdrawals affect the loan’s security.
The Real Challenge: Valuation Ambiguity
The “V” in LTV — valuation — is where things get fuzzy.
Valuation is rarely universal. Depending on the lender, market conditions, and valuation methods used:
- One property may be valued differently by two banks
- A used car’s value could vary significantly depending on mileage or condition
- Equipment without a strong resale market may get conservatively valued
This leads to mismatched expectations, especially if you’re buying from a seller who’s pricing emotionally or speculatively.
Why This Matters for You
You may think you’re getting 80% financing, but if the valuer gives a lower number, your effective loan-to-cost becomes much lower.
You may need to top up in cash to make up the shortfall.
In some cases, you may overpay for the asset because you’re using financing based on inflated pricing.
Final Thoughts
LTV is more than a percentage — it’s a risk measure, a negotiation point, and a cash flow consideration all rolled into one.
The concept itself is simple. But the real-world application depends on how the asset is valued, and that’s where many borrowers get caught off guard.
So before committing to any asset purchase or financing plan:
- Ask how the lender determines valuation
- Get an indicative valuation before placing a deposit
- Work with a consultant who can help interpret and negotiate the best terms
At CapitalGuru, we help business owners and property buyers make sense of LTV — and structure loans that align with reality, not just sales talk.