Mortgage Loan to Value Ratio: What You Really Need to Know
Your loan to value ratio is an important aspect of your
mortgage. This ratio determines how much you can borrow when taking out a
mortgage or home equity loan. Here is what you need to know about your home’s
loan to value ratio.
Mortgage lenders look at your home’s loan to value ratio
when approving your loan. Loan to value ratio is a calculation based on how much
you owe and what the value of your home is. If your home for example, is worth
$250,000 and you owe $60,000, your loan to value ratio is 24%. ($60,000/$250,000
* 100 = 24%)
The lower this percentage is, the more equity you have
in your home. Mortgage lenders typically do not want loan to value ratios that
are higher than 80%. If your loan to value ratio is greater than this amount you
may have to find a non-traditional lender to refinance your mortgage or take out
a home equity loan.
As a homeowner it is best
to maintain at least 80% loan to value to protect yourself from economic
uncertainty. If you go over 80% loan to value and property values decline, it is
possible to wind up owing more than your home is worth. This can lead to serious
problems with your mortgage lender.
