What is a healthy loan to value?
As a rule of thumb, a good loan-to-value ratio should be no greater than 80%. Anything above 80% is considered to be a high LTV, which means that borrowers may face higher borrowing costs, require private mortgage insurance, or be denied a loan. LTVs above 95% are often considered unacceptable.
Low LTV mortgage conclusions
Well, anything lower than 80% is considered a good LTV. Generally, LTVs can go as low as 40% and 50%, and the lower the LTV, the better deals you'll be able to get.
Let's say you own a home that you bought five years ago and is worth $100,000. If you have a mortgage with an outstanding balance of $65,000, that means that your current LTV is 65%.
Homeowners can easily calculate the LTV ratio by dividing the current mortgage amount for their home by the appraised property value. So, for a home with a mortgage of $120,000 and an appraised property value of $200,000, the LTV is 60% ($120,000 ÷ $200,000 = 60% LTV ratio).
A 75% LTV mortgage is at the lower middle end of the typical range – usually, lenders offer LTVs between 50% and 95%. With a 75% LTV, lenders are taking on less of a risk, so you'll have a wide range of competitive options to choose from, with better deals and a lower total cost than you would with higher LTVs.
Compared to other mortgage types, 60% LTV mortgages are one of the cheapest. How much deposit you are able to provide will usually get you access to a low-interest rate. This comes in handy as you'll pay fewer repayments and save more money in the long run.
Better Interest Rates: With a lower LTV, such as 10%, 20%, or 30%, you can enjoy more favorable interest rates compared to higher LTV mortgages. This can result in lower monthly mortgage payments and potential long-term savings.
Generally, 80% LTV is considered a good loan-to-value ratio. If you're buying a home, you achieve an 80% LTV by making a 20% down payment. Homeowners with an 80% LTV do not have to pay for private mortgage insurance (PMI). And they typically qualify for lower interest rates.
What is a 'good' loan-to-value ratio? As a general rule of thumb, your ideal loan-to-value ratio should be somewhere under 80%. Anything above 80% is considered a high LTV. There are plenty of mortgages available for people with LTVs at 80%, 90%, or even 95%, but you'll be paying much more on interest.
Since 100% LTV mortgages are a bigger ask from lenders, given that there is an absence of a deposit, this means that they are typically considered as high-risk. The significant direct consequences of this are that mostly all 100% LTV mortgages require a guarantor & come with higher interest rates.
Is 50% LTV good?
A 50% LTV mortgage is at the low end of the typical range – usually, lenders offer LTVs between 50% and 95%. With a 50% LTV, lenders are taking on less of a risk, so you'll have a wide range of competitive options to choose from, with better deals and a lower total cost than you would with higher LTVs.
70% mortgages come with lower interest rates than higher LTV deals like 80% LTV or 90% LTV mortgages. An LTV at 70% is considered low, but it is possible to access even lower rates if you can save up a larger deposit. Mortgages at 65% LTV or 60% LTV can offer some of the lowest rates on the market.
A 55% LTV mortgage is at the low end of the typical range – usually, lenders offer LTVs between 50% and 95%. With a 55% LTV, lenders are taking on less of a risk, so you'll have a wide range of competitive options to choose from, with better deals and a lower total cost than you would with higher LTVs.
Most will offer a range of two or three LTV bands – perhaps between 80% and 95% LTV, between 60% and 80% LTV, and below 60% LTV, for example. But across the market in general, you can probably find mortgages on offer above 95% LTV and then in multiples of 5% increments (90% LTV, 85%, 80% and so on).
90% LTV mortgages are evidently a significant investment for banks and lenders to make. It's for this reason that they consider these loans as 'high-risk' and consequently demand you pay relatively higher interest rates, as compared with lower loan to value mortgages.
If you already own your home and you want to remortgage it – perhaps because your existing mortgage deal is coming to an end – you can apply for a 90% LTV mortgage. As long as you have built up 10% of equity in the property (or you have the savings to top up your equity to 10% of the property value).
A 60% LTV ratio is considered quite low, so you'll generally be seen as less risky by the lender which should help you access your best mortgage rates.
A 40% LTV mortgage is a mortgage with a loan-to-value ratio of 40%, which means it would cover 40% of the property's value or purchase price. The remaining 60% would come from the borrower's deposit funds or existing equity, if the agreement in question is a remortgage.
Keep in mind, though, that a high LTV can come back to bite you. If the value of your house falls, you could end up underwater on the loan, owing more than it's worth. If this occurs, it can be difficult to sell the property or refinance your loan.
With 35% LTV, you'll have the maximum number of options to choose from, as it's at the lower end of the scale and so you'll be eligible for the cheapest rates and the best deals. It means you'll pay a lower amount of interest over the long run compared to other higher loan to value products.
What does 80% loan to value mean?
For example, if you have $40,000 for a down payment, shopping for homes in the $200,000 price range would line you up for an 80% LTV. Not only would you save by avoiding mortgage insurance, but you should also be able to avoid a high-LTV loan and the elevated interest rates that could come with it.
What is a good LTV? LTVs at 60% or below are considered the best in terms of getting the best mortgage deals. Ideally, lenders like to see LTVs at 80% or below.
Different mortgage lenders will have different criteria for LTV ratios, but most prefer a ratio of 80% or below. Mortgages with higher LTV ratios pose a greater financial risk to a lender.
Lenders set maximum LVR limits
Some have a maximum LVR of 90%. This means you need at least a 10% deposit to be eligible for a home loan. Others have a maximum loan to value ratio of 95%, meaning you could secure a home loan with as little as a 5% deposit.
An 80/10/10 piggyback loan is a type of loan that involves getting two mortgages at once: One is for 80% of the home's value and the other is for 10%. The piggyback strategy lets you avoid private mortgage insurance or having to take out a jumbo loan.
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