How do I use a Loan to value – LTV calculator?
When you apply for a mortgage, you will be evaluated by the bank using a range of calculations. One of these calculations is known as the Loan to value ratio, or LTV ratio. Working out this ratio allows the bank to calculate exactly how much of a risk your mortgage would be, and what the bank might expect to happen if they lend you money. Generally, the assessment which produces a high LTV ratio will be seen as a high risk, and may cost you more in terms of mortgage repayments, or even result in you being refused a loan at all.
How is the Loan to Value ratio worked out?
When a bank or lender considers you for a mortgage, they look at two different elements, the value of the property you want to buy, and the mortgage amount that the customer will need to buy the property. The latter amount is divided by the cost of the property, and this gives the LTV ratio. If a customer wants to borrow a high sum to buy a house, say £90,000 for a house worth £100,500, then they will get a ratio of over 90% LTV. Most banks will only look at a mortgage if the ratio is less than two thirds of the price of the house, and will not approve the £90,000 that the customer needs.
Why should I use an LTV calculator?
Know your LTV’s before your apply
Being refused a mortgage can have a negative impact on your credit rating, and so it makes sense to use a LTV calculator to work out whether the bank is likely to offer you the money you need to buy your dream home. You can also use the calculator to work out the highest mortgage you can ask for, so that you can get a big loan without risking being refused. With this knowledge to hand, you will be in a good position to go to the bank or any lender and ask them for a mortgage. The Loan to Value calculator is also good when you are looking for houses, as they allow you to work out your financial limits, how much you can afford and which mortgage products will be available to you.
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