Loan-to-Value Ratio

Banks typically lend borrowers up to 80% of the value of the collateral, known as the loan-to-value ratio (LTV). However, this percentage can vary. If the borrower has sporadic income, the LTV might be lower, whereas if the borrower has a high and stable income, the LTV might be higher.

The Bangko Sentral ng Pilipinas (BSP) recommends that for loans to be considered "secured by collateral," banks should lend only up to 60% of the collateral's value. However, the final decision is left to the banks, which assess the borrower's capacity and willingness to repay the loan.

How high can the LTV go? I have seen a bank grant a loan at 94.63% of the property's selling price. This indicates that the bank valued the property even higher than its selling price.

One might think that a high LTV is advantageous, but this isn't always the case. In this instance, the deal fell through because the equity portion was only 5.37%, insufficient to cover the capital gains tax on the sale. The seller was reluctant to contribute additional funds when they were the one selling the property.