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If you have been looking for home loans, you will have come across the loan-to-value formula. But how exactly does this figure work? And why should you care? The loan-to-value concept is helpful and simple to understand. You borrow money and agree to a specific interest rate and repayment terms.
The loan-to-value ratio is a financial terminology used by lenders to indicate an asset's percentage to that asset's current value. In layman's terms, the loan-to-value ratio (also known as the LTV) compares today's prices of an asset to the prices it was sold for in the past. Banks, and other financial institutions, most commonly use the term to represent the initial mortgage rate ratio to the current total appraised value of the residential real estate.
This financial concept can often have significant consequences for home buyers. For example, suppose a borrower took out a 30-year fixed-rate mortgage from a bank and paid a total amount of $80,000 over the years, but has only paid a small portion of that amount due to missed payments. In that case, their lender can foreclose the property if the borrower cannot make up the payments through the second mortgage insurance. Likewise, a home buyer who has made large but single payments over the years may have his or her loan canceled if the lender cannot recoup the lost money through loan insurance premiums.
However, there are good benefits to be derived from knowing your loan-to-value ratio. One of the most significant benefits is that homeowners will determine whether they can refinance their home purchase to lower monthly payments or get a better interest rate. A low loan-to-value ratio is one reason why many homeowners remain in their homes after market crashes. However, some lenders are now beginning to offer adjustable-rate mortgages to customers with a low initial mortgage payment. Lenders will offer these loans at a later date as interest rates start to drop.
Mortgage refinancing allows for a second mortgage or home equity loan to pay off high-interest debt. Homebuyers who refinance using a second mortgage obtain a better interest rate than would have been possible using a primary loan.
Unfortunately, loan consolidation and home equity loans can also help people lower their monthly payments and get better terms on their loans. As noted above, most lenders are now offering mortgage programs that can help home buyers with adjustable-rate mortgages. If the borrowers can obtain a fixed-rate loan, they may also get a lower payment on the principal amount. Loan consolidations and refinancing can help us, as loan holders, in two different ways: lowering monthly payments and getting better terms on loans.
AAnother reason that loan consolidation and refinancing may be an option for many homeowners, is that fixed-rate mortgages have become too expensive for lots of people. These homeowners must have adequate income and available funds to maintain the mortgage payment each month.
If a person's income is insufficient to meet both of these requirements, they may not be able to afford the monthly payment required to keep the mortgage current. A loan-to-value refinance can help lower monthly payments while maintaining the original loan's effective interest rate. Fixed-rate mortgages are risky for lenders because they do not change their interest rates at all during the life of the loan.
Allow us to work it out for you, contact a Plentii agent now! To discuss your options and what would be best for you, contact us here.
YYour loan-to-value ratio is essential if you want to buy a foreclosure property. Many of the pre-foreclosure listings feature distressed properties that need substantial repairs. Many buyers cannot afford to make these repairs, and these properties end up on the auction block. If you own a foreclosure property and plan to use a loan-to-value refinance strategy, you will want your loan-to-value ratio to be at least 2.5 percent.
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It is important to note that you will not know the exact figures for your loan-to-value refinance until you’re signing the final papers. The lending institution that approved your first mortgage will be the lender who determines your new interest rate. In some cases, the lender will use your credit rating to determine whether or not you qualify for a second mortgage, a home equity line of credit, or a refinancing program for your first refinance. Even if your previous loan does not adversely impact your credit score, you may want to consider consulting with a professional mortgage consultant who can review your finances to identify areas for which you should focus financial efforts.