When you buy a new property, you will ultimately hear people talking about the Loan to Value (LTV). Although you may know that it is connected to the value of your property, but do you know what it is and how to calculate the LTV of your current home?
Lenders rely on the LTV to decide which mortgage to offer customers. As they want to reduce the risk as much as possible, a lender is likely to give the best mortgage rate deals to those with a lower LTV.
To calculate it, divide the amount you would like to borrow, or the amount still owing on the house, by the value of the property. Then multiply by 100 and you will then have the LTV percentage.
However, the LTV can change, and this is caused by fluctuating value of property. If a property’s value falls below the amount which is owed on the mortgage, then it is classed as negative equity.
When you are looking for a new home, compare the mortgage deals available and take note of the LTV. Most lenders will offer a better deal to someone buying a property with a low LTV, as there is less risk attached. It may be preferable to save a bit more money, so that you can qualify for the lower interest rate. However, if there are arrangement fees and other costs attached, this may not be the best choice.
Mortgage advisers study for a CeMAP qualification so that they are able to advise customers accordingly.