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Morgage LTV - Loan to Value Definition
The Morgage LTV ratio is a calculation that expresses the amount of a morgage as a percentage of the value of a home (LTV is an acronym for 'Loan to Value'). For example, if a home is worth $100,000 and it has a morgage of $70,000 on it then the LTV would be 70%.
The Loan to Value is one of the most important risk factors lenders use when qualifying people for a morgage. Since the risk of default is the most pressing concern of a lender the likelihood of absorbing a loss through default is much less on properties with low Loan to Values (because there is greater probability that the home can be sold by the lender to pay for the amount borrowed through the loan). What this effectively means is that the greater the Morgage Loan to Value then the more strict the guideflines for loan qualification become. In fact, this increase in risk is the reason many lenders will require 'Morgage Insurance' on loans with LTV's greater than 80% (Morgage Insurance is a type of insurance for lenders that insures them in the event of a default).
On account of the risk it follows that loans with lower LTV's typically have less fees and loans with higher Loan to Value's typically cost more than there less-risky counterparts. However, there are other factors such as income, assets and credit scores which can nullify a higher LTV. For example, if you have a credit score above 680 and are able to document your income and assets then having a Loan to Value above 80% will have little impact on your interest rate and terms. Conversely, if you have a low credit score and a high Loan to Value your rate will likely be adversely affected.
Combined Loan To Value (or 'Morgage CLTV') is the proportion of all loans on a property in relation to property's value. For example, say you have a first morgage with an LTV of 80% and a 2nd Morgage with an LTV of 10%: your Combined Loan to Value would be 90% (because you add the LTV, i.e., 80% + 10% = 90%LTV)
Other Important Morgage Terms
Negative Points – Points paid by a lender for a morgage with a rate above the rate on a no point loan.
Sometimes called rebates because they are used to reduce a borrower’s settlement costs.
No Asset Loan – A documentation requirement where the applicant’s assets are not disclosed.
No Income Loan – A documentation requirement where the applicant’s income is not disclosed.
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Morgage LTV Definition - What is the Loan to Value Ratio Formula?
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