Mortgage, deposits and LTV
Mortgages are the most important financial commitments people make, and because of this, they should be thoroughly informed. In this article we will go over what you should expect about mortgages, how to prepare yourself for applying for mortgage and general information on how’s and why’s. Mortgage is a secured loan and as such it requires an asset upon which it will be secured. If you go to a bank and ask for a mortgage, that means you’re willing to give your house or business to the bank if you fail to repay the debt. Banks love making secured loans because their money is guaranteed to be returned, unlike the unsecured loans. Now what you should expect when you apply for mortgages.
Banks do not give mortgage to anyone. They are scared they will lose money and in order to secure their money they have to make a good deal. That is why the banks never lend the full amount of money. In order for you to get a loan, you have to first make a deposit. Let’s say you’re buying house worth 100 thousand dollars. To get a mortgage for that house, you will have to come up with a deposit which makes a certain percentage of those 100 thousand you want to borrow.
The bigger the deposit is, the more chance you will get the desired mortgage, plus, the higher it is the lower the interest rate will be. So, if you come up front with 30 thousand dollars and say you want to get mortgage on that 100 thousand dollar house, the bank will agree, lend you 70 thousand and make a deal that if you fail to repay the debt, they will seize the house. The reason why banks do this is that the market value of real estate occasionally drops as well as it rises. If a bank were to loan you the full amount of money the house costs, after some years you’re not able to repay the debt and they sell it when the market value drops, they lose money.
As a last bit of this article, we will talk about LTV. Now, first, what is LTV. LTV stands for ” Loan to Value ”. Your house costs 100 thousand dollars, that’s the full value of your house. You’ve asked for a loan and came up with a deposit of a certain sum. The full amount of the house minus the deposit equals to what the bank is going to loan.
So if you’ve come up with 30 thousand, the loan will be 70 thousand dollars. Loan to Value is exactly as it says, 70 thousand compared to 100 thousand dollars. It always gets viewed in percentage, so your LTV is going to be 70 percent. This LTV is the standard on how the banks decide if they’re going to loan you the money or not.
The higher your LTV is, the less chance you will be able to get a mortgage. So before you decide to apply for mortgage, scrape as much money as you can from your family or friends and then go and apply.