The loan to value (LTV) is basically the size of the loan which a lender is willing to offer in relation to the value of the property it buys or redeems.
It's expressed as a percentage. For example, if a lender offers a mortgage deal with a maximum 80 percent LTV, that means they will give you up to 80 percent of the property value.
Mortgage LTVs typically range from 50 percent to 95 percent.
Generally, loan to value can be calculated manually or using LTV calculator.
When it comes to borrowing money against a home, LTV matters a lot. A lender will look at the LTV as part of the mortgage or remortgage assessment. If you have a lower LTV, there is a lower risk to the lender and a lower interest rate–and therefore lower monthly payments will be offered to you more than likely. If you fail to pay a mortgage, a lender may have to take the property back and sell it to get their money. If there is more equity (and lower LTV) then they are more likely to get back all of their money.
Most mortgages where the LTV is over 80 percent will require the removal of PMI or Private Mortgage Insurance. It helps the lender as the insurer pays to lessen their risk. You will pay a higher interest rate and you will probably have to pay PMI for a high LTV loan.
Loan to Value is not the only consideration when a lender decides on eligibility for a mortgage. They will also look at credit score and housing ratios among others to determine their risk in lending money.
LTV does not remain at the same exact level. If the price of your house rises or falls, your LTV will not remain static. As you pay off your mortgage, you lower the LTV with every principal's repayment. In a falling market, lenders like to build in a buffer and will adjust their acceptable LTV ratio.
The LTV has an impact on how much you can borrow. The lower the LTV, the better your mortgage rates will be.
You will need to know your LTV in order to find out what mortgage deals you are likely to eligible for, which means determining what percentage of the property value you need to borrow and how much you can cover with your deposit.
You can do this by dividing your mortgage amount by the property's value. You multiply this number by 100 to get your LTV. For example, if you buy a property worth £250,000 and have a deposit of £50,000, you'll need to borrow £ 200,000.
You need to divide £ 200,000 by £ 250,000 to find out what your LTV is. This is equal to 0.8, which is 80% when multiplied by 100.
That means your LTV is 80 percent and your deposit is 20 percent, so you should look for an 80 percent LTV mortgage deal.
The other method to know loan to value is LTV calculator that can help you in calculating LTV.
LTV calculator works according to the LTV calculating formula. You can select one option out of three:
Then, write down purchase price and deposit price. Next, click on “Calculate”. The result will show you LTV figure in percentage and loan amount figure in dollars. That’s how you can find loan to value using Prepostseo loan to value calculator.
The lower your LTV, the wider your mortgage choice will be.
Lenders usually offer lower-risk borrowers their most competitive mortgage deals, which means homebuyers with a large deposit to put down, or those who own a substantial amount of equity in their property if remortgage.
Therefore, if you qualify for a 50 percent LTV mortgage because you have a 50 percent deposit or the equivalent amount of equity, you will benefit from better rates and a better choice than someone with a smaller deposit or equity if you are remortgaging.
Similarly, if your LTV is 60 %, you will usually have a wide range of competitive deals to choose from, as lenders will still regard you as less likely than someone with a smaller deposit or equity to default on your mortgage.
If your LTV is 75 %, you are also likely to qualify for a wide range of deals at lower rates than would be offered with a higher LTV. Therefore, it could be worth considering using them to reduce your mortgage amount if you have additional savings available, as this could ultimately get you a better mortgage deal and save you money in the long run. Always make sure that you keep some savings available that you can use in case of an emergency.
If you only have a small deposit to put down, such as 5 percent or 10 percent of the property value, you will be limited to 95 percent or 90 percent LTV mortgage deals.
If you want to buy a property to let out and need a mortgage, you will usually find LTVs on buy to allow mortgages to be generally slightly lower than on residential mortgages, as they pose a higher risk to lenders.
The maximum amount you are likely to be able to borrow is 75 percent to 80 percent of the value of the property. Also bear in mind that buy-to-let mortgage rates are usually higher than residential rates.