Mortgage Loan to Value Ratio: What You Need to Know

Tip! Not many people who need to shop for a low mortgage rate actually have gone to school or otherwise been specially trained in financial matters. Therefore, no matter how much time you spend doing amateur research on how a mortgage rate works, you’ll probably still have a number of questions regarding your mortgage rate. That is fine. Your representative should go over the ins and outs of your mortgage rate and the other terms and conditions of your loan, making sure all of your questions are answered. If he or she is somewhat secretive about any aspect of your mortgage rate, or if he or she gives you answers that are unhelpful, be cautious. You should read over your mortgage carefully and possibly seek the advice of a financial advisor or mortgage broker to make sure that your mortgage rate is fair and that you aren’t being scammed. A friendly and helpful lender is the key to securing a good mortgage rate and a fair mortgage.

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. You can learn more about mortgage loans, including common mistakes many homeowners make, by registering for a free mortgage guidebook.

Louie Latour specializes in showing homeowners how to avoid common mortgage mistakes and predatory lenders. For a free copy of "Mortgage Refinancing: What You Need to Know," which teaches strategies to find the best mortgage and save thousands of dollars in the process, visit Refiadvisor.com.

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Mortgage Loan to Value Ratio: What You Need to Know