Home credit: Why is it considered the lowest value between acquisition and evaluation for LTV?
For home credit - housing, some measures are used to determine the loan risk for the bank. Understand what LTV is and why the lower value between acquisition and evaluation is used to calculate it.
Looking to apply for a housing loan? Leave it to us! The credit intermediaries of Poupança no Minuto take care of everything for you through a free service! Contact us now or better understand the issue at hand, later on.
What is LTV in mortgage credit?
No home loan, in order to determine the Loan-to-value (LTV) factor, the lowest value between the property acquisition value and the appraisal value is considered. https://www.poupancanominuto.com/credito-habitacao?utm_source=poupanca-no-minuto&utm_medium=artigo&utm_campaign=383-credito-habitacao
But what is LTV? This factor represents the measure that compares the loan value with the appraisal value of the real estate project, that is, the ratio between the amount financed by the bank to purchase the property and the appraised value of the house).
For LTV, consider the lowest value between acquisition and evaluation.
According to the Bank of Portugal (BdP), the determination of the property value is a critical variable for the calculation of the LTV and for the relevance of the ratio as a risk indicator.
Therefore, the ability of the LTV to indicate potential losses for the financial system resulting from credit default depends on whether the variable considered for the property value corresponds to the market value at a certain time or to the resale value of the property.
As a rule, there is usually some discrepancy between the property transaction value and its bank evaluation, which is due to a certain subjectivity in determining the property value by the appraiser, buyer, or seller.
In other words, considering the lower value between the two values for calculating the LTV is a prudent procedure in assessing the risk associated with the property, consistent with the recommendations of the European Systemic Risk Committee and the practices followed by several European countries.
In addition, there are situations in which it is not possible to determine the acquisition value of the property or when there is no suitable reference for its market value, such as in cases of properties acquired by donation or inheritance. In these cases, the LTV is always calculated based on the appraisal value.
When applying for a housing loan, facing complex concepts that we are unfamiliar with can be a challenge. That's why the credit intermediaries at Poupança no Minuto offer all their help to assist those who want to contract this financing, saving and being saved. This is because it is a cost-free service that guarantees finding the best and cheapest credit proposal, handling all the associated bureaucracy.
Simulate your home loan with us so we can start your process right away: [URL].