Mortgage banks and lenders look at many factors when deciding to whom they’ll pass out house loans and at what rates. Lenders will look at your credit rating, duration of employment, savings, monthly debt obligations and gross monthly earnings. Among the most important factors that creditors consider, however, is the creditors’ loan-to-value percentage.
The loan-to-value ratio is the percentage of your new home’s purchase price that your mortgage loan covers. Lenders rely on the loan-to-value ratio to help them decide how much risk they’re taking on if passing mortgage loan cash.
To calculate the loan-to-value amount of your house purchase, just divide your mortgage loan amount into the total purchase price of your property. For instance, if you’re purchasing a $150,000 house and are carrying out a mortgage loan for $135,000, your loan-to-value ratio stands at 90 percent. If you took a $120,000 loan to the same $150,000 house, your loan-to-value ratio could be 80 percent.
Loan-to-value is affected by the sum of money you put back on your house purchase. The down payment constitutes the gap between the property’s purchase price and the mortgage loan that you take out. For instance, when you have a loan-to-value rate of 90 per cent on a $150,000 loan, you will generally have come up with a down payment of $15,000.
In general, the lower your loan-to-value ratio, the higher interest rates that you will pay on your mortgage loan. That’s because creditors are taking on more risk if they fund a larger percentage of your mortgage loan. They will charge higher interest rates to protect themselves when the loan-to-value rate is 80 percent. They will charge lower rates when its 95 percent. Rates of interest can make an important difference in the amount of money you pay on your mortgage loan each month. If you have a 30-year fixed-rate mortgage loan of $200,000 in an rate of interest of 7 percent, you are going to pay more than $1,330 a month in mortgage payments. If your rate of interest on precisely the exact same loan stood at 6 per cent, you would pay marginally more than $1,199 a month. That’s a savings of more than $130 per month, or $1,570 a year.