A higher LTV ratio does not exclude borrowers from being approved for a mortgage, although the total cost of the loan rises as the LTV ratio increases. The LTV ratio will decrease as you pay down your loan and as the value of your home increases over time. Exceptions are sometimes made for borrowers with high income, lower debt or other factors like a large investment portfolio.
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The maximum loan-to-value ratio is the largest allowable ratio of a loan's size to the dollar value of the property. The higher the loan-to-value ratio, the bigger the portion of the purchase price that was financed. Different loan programs are viewed to have different risk factors, and thus have different maximum loan-to-value ratios.
While the LTV ratio looks at the impact of a single mortgage loan when purchasing a property, the combined loan-to-value CLTV ratio is the ratio of all secured loans on a property to the value of a property. Lenders use the CLTV ratio to determine a prospective home buyer's risk of default when more than one loan is used - for instance if they will have two or more mortgages, or a mortgage plus a home equity loan or line of credit HELOC.
The LTV ratio considers only the primary mortgage balance. Primary lenders tend to be more generous with CLTV requirements. Considering the example above, in the event of a foreclosure, the primary mortgage holder receives its money in full before the second mortgage holder receives anything. The primary lien-holder shoulders less risk in the case of declining property values and therefore can afford to lend at a higher CLTV.
The main drawback of loan-to-value is that it only includes the primary mortgage that a homeowner owes, and does not include other obligations such as a second mortgage or home equity loan.
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Therefore, combined loan-to-value CLTV is a more inclusive measure of a borrower's ability to repay a home loan. Loan Basics.
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LTV and Loan Underwriting. Ranking the Loan-to-Value Ratio. Overall Cost for Comparison 4. This is the cost of the mortgage over the full term. Get an Agreement in Principle. Fixed rate : Your repayments are fixed for the duration of the fixed term, no matter what happens to interest rates. At the end of the stated term the interest rate reverts to the Virgin Money Variable Rate. You can apply for this mortgage: If you are an existing Virgin Money Customer or not. Overall Cost for Comparison 3. The loan to value ratio of a mortgage indicates how much of your property you own outright covered by your deposit, and commonly known as equity and the amount you are borrowing covered by your mortgage , expressed as a percentage.
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Generally speaking, a lower LTV means that you can get a better deal, because you are borrowing less money and therefore present a lower risk to the lender. However, there are certain criteria that you will need to fulfil in order for your application to be successful. Mortgage lenders generally offer better rates for people who have a significant deposit, or equity in their current home, to put towards the purchase value of a new property. There are various interest rate options available, including:.
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