What is Loan To Cost Ratio?
Loan-to-cost (LTC) ratio is a measure that compares the amount of a loan to the total cost of a construction or development project. It is expressed as a percentage and is calculated by dividing the loan amount by the total cost of the project.
For example, if the total cost of a construction project is $100,000 and the borrower takes out a loan for $80,000, the LTC ratio would be 80% (80,000 / 100,000).
LTC ratios are often used by lenders to evaluate the risk of lending to a borrower for a construction or development project, and to determine the terms of the loan. A higher LTC ratio generally indicates a higher level of risk for the lender, as there is a greater amount of the loan relative to the total cost of the project. As a result, lenders may require higher interest rates or additional collateral for loans with higher LTC ratios.
LTC ratios are commonly used in the real estate industry, particularly when financing construction or development projects. They can be an important consideration for borrowers, as they can impact the terms and cost of the loan.
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