LTV
Stands for: Loan-to-Value
Banks and other lenders extend credit based
upon a percentage of the estimated market
value of your home.
That percentage of market value minus the amount you owe on your first mortgage
(plus any 2nd or 3rd mortgages that you
may have) becomes the maximum amount of
credit that lenders will give you.
For example:
Let's say that your new home purchase
has an estimated market value of $150,000.
You placed 20% down at $30,000 and the
lender finances $120,000 of your home
mortgage. The maximum amount that you
can borrow is calculated as follows:
| Estimated
Market Value: |
|
$150,000 |
$150,000 |
$150,000 |
| Percentage
LTV: |
|
80% |
90% |
100% |
| Percentage
of Market Value: |
|
$120,000 |
$135,000 |
$150,000 |
| Less
Mortgage Debt: |
|
$120,000 |
$120,000 |
$120,000 |
| Equals
Total Equity: |
|
$0 |
$15,000 |
$30,000 |
Banks and other lenders generally charge
a higher rate of interest for higher percentages
of LTV.
Since most new home owners can't borrow
at the 80%LTV level (most of their available
equity is the down payment), they often
view equity products at the 90%-100%LTV
level.
They expect to pay a higher rate of interest,
but the rate of interest is generally lower
than credit card advances and other unsecured
loans used for home improvement and other
repairs for the home.
Calculate
your own LTV percentage value.
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|
