Loan to Cost Ratio (LTC)

Loan to Cost Ratio (LTC) is the percentage of total development cost funded by debt. It is calculated as: total loan amount divided by total project cost multiplied by 100. In Australian townhouse development finance, lenders typically allow 65–80% LTC on senior debt, with the developer contributing the remaining equity.

Why It Matters

LTC directly determines how much cash equity a developer needs. At 75% LTC, a $2M project requires $500K in developer equity. At 80% LTC with mezzanine, the equity drops to $400K. LTC is used alongside GRV-based LVR to set the boundaries of a development funding facility.

How It Works

Total project cost includes site acquisition, construction, professional fees, capitalised interest, and contingency.
The lender divides the total facility amount by total project cost to calculate LTC.
Senior debt LTC is typically 65–80%. With mezzanine, combined LTC can reach 85–90%.
The remaining percentage is funded by the developer's equity.

Common Use Cases

Determining equity requirements for townhouse development
Comparing lender offers — a higher LTC means less equity required
Feasibility modelling alongside GRV
Structuring layered funding with senior and mezzanine components

Related Switchboard Resources

How is LTC different from LVR?

LTC compares the loan to total project cost. LVR compares the loan to the property or project value (such as GRV). Both are used in development lending — LTC measures cost coverage, LVR measures value coverage.

What LTC can I expect on a townhouse project?

Senior lenders typically offer 65–80% LTC. With mezzanine finance, combined LTC can reach 85–90% of total project cost.

Does LTC include interest costs?

Yes — total project cost should include capitalised interest, professional fees, and contingency. Lenders want to see the full picture when calculating LTC.