Payday Loan
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Mortgage - Credit card - Internal - Loan - Payday loan - Loan to Value
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Loan to
Value
The term loan to value, or LTV,
applies primarily to the mortgage banking
industry. Loan to value is an equation that
mortgage lenders use to assess their risk in
lending a borrower money to purchase property.
The loan to value equation is basically a ratio
of the amount of money being borrowed to the
value or purchase price of the property,
whichever is less. To determine LTV of a new
purchase, the purchase price or appraised value
is divided by the down payment. As an example, if
you were to purchase a home for $100,000 and had
$10,000 to apply as a down payment, the loan to
value ratio would be 90%.
The purpose of establishing the loan to value
ratio in the purchase of a home is to protect the
lender from lending more money than the property
is worth. This is why the appraised value must be
at least equal to the purchase price. For
consumers, the loan to value ratio weighs heavily
on the interest rate you will receive on the
payback of the loan. The lower the LTV, the lower
the interest rate you will be given. Generally
for every 5% increase in loan to value above 70%,
the interest rate increases by 1/8 of a percent.
In addition, most lenders require private
mortgage insurance premiums, or PMI, on loan to
values greater than 80%. The premium for private
mortgage insurance will depend on the insurance
company and the lender but can be as much as 1%
of the loan amount.
Though the borrower will pay a higher interest
rate on a 100% loan to value ratio, many lenders
will offer a 100% LTV loan on a new purchase.
However, a refinancing loan will generally not go
to 100% loan to value. Lenders determine the loan
to value on a refinance by requiring an appraisal
of the property. Usually, they can check the sale
prices of comparable properties within a mile to
determine the value of the home, but in special
circumstances, a walk-through appraisal may be
necessary.
The loan to value ratio of a property also
determines the amount a lender will give a
borrower who wishes to obtain a home equity line
of credit or a second mortgage. The difference
between the value of the home and the amount owed
on the primary mortgage is the maximum amount
that can be borrowed.
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Introduction - Payday loan - Revolving
Credit - Open End Credit - Cash
Advance - Interest
Mortgage - Credit card - Internal - Loan - Payday loan - Loan to Value
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