In real estate, Loan to Cost (LTC) is the ratio of the outstanding loan balance to total project cost. The higher the loan-to-cost, the less cash equity the borrower has invested in the property (i.e. less skin in the game) and therefore the higher the risk that the borrower will default on the loan. Real estate lenders most often use this metric in assessing the risk of lending on a real estate development project, but LTC is also considered on acquisition loans to compare the proposed loan amount to the acquisition price.
Loan to Cost (LTC) = Loan Amount ÷ Total Project Cost« Back to Glossary Index