Understanding the Loan to Value Ratio

These years many tenants are taking advantage of the present low degree of interest rates to get into a home of their own. In addition, many current homeowners are taking advantage of those same low interest rates to refinance their home mortgage loans at more than advantageous interest rates.

Therefore, whether you are a current tenant moving into a home of your ain or a long clip homeowner seeking a lower interest rate, it is of import to understand one of the most of import financial expressions - the loan to value ratio.

The easiest manner to understand the loan to value ratio is that it stands for the human relationship between the amount of the outstanding mortgage as compared to the current value of the home. Since lodging terms have got got been rising very fast in many countries of the country, many current homeowners have built up quite a spot of equity in their homes.

Many homeowners, for instance, happen themselves in the happy circumstance of owning a home that is deserving substantially more than than than they paid for it, or substantially more than they owe on it. This agency that the homeowner have equity that tin be used to borrow further funds, refinance the mortgage or even shorten the term of the mortgage loan.

It is fairly easy to cipher the loan to mortgage ratio. It simply necessitates knowing approximately how much your home is worth, the amount of the outstanding mortgage and the amount of the original down payment. For our exercising we will utilize a home value of $150,000. The approximative value of your home can be estimated by looking at what similar homes in your vicinity have got sold for.

When calculating the loan to value ratio, the first measure is to take the original purchase terms of the home, in this lawsuit $150,000 and deduct out the amount of the original down payment. For this exercising we will utilize a down payment of $20,000.

The loan to value ratio is calculated by subtracting the $20,000 down payment from the purchase terms of $150,000. In this lawsuit the consequent number is $130,000, which stands for the $150,000 purchase terms minus the $20,000 down payment. Dividing the $130,000 loan amount by the $150,000 purchase terms gives us a loan to value ratio of 0.87, or 87%.

It is of import to cognize your loan to value ratio, since this number will be of import to lenders any clip you apply for a loan.

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