Commercial Mortgage Quick Reference Guide
LTC: Loan To Cost Ratio
LTC stands for loan-to-cost ratio. It is a ratio used in commercial mortgage finance and multifamily financing to determine the ratio of debt relative to the cost of acquiring the property. In the case of rehab or construction it relates to the total cost of the project as a whole. If a borrower is buying a property for $1 million, and the property is worth $2 million, and the loan requested is $800,000, the LTC is 80%. It is important to remember that the value of the property has nothing to do with the LTC; the value of the property is a subject matter for LTV. Commercial mortgage lenders use LTC as a factor to determine risk in a deal, the lower the leverage, the lower the risk. Conversely, higher leverage offers higher risk.
The formula for LTC (the loan to cost ratio) is:
LTC = Loan Amount / Total Cost