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Loan-to-Value Ratio: What is it and Why Does it Matter?

by admin on May 28, 2015

When applying for a mortgage there are many different factors that a lender will consider before deciding whether or not he/she will lend you money and with what repayment terms. These factors include credit history and score, employment stability, total monthly income, debt to income ratio, and loan-to-value ratio.

A loan-to-value (LTV) ratio is a calculation that allows the lenders to assess the level of risk associated with lending you money to finance a home. LTV is calculated by dividing the outstanding mortgage amount against the property with the total value of the property. For example, if the house value is $600,000 and the outstanding mortgage loan is $450,000, then the LTV ratio is 75%.

With a high LTV ratio, over 80%, borrowers will have to pay a large insurance fee which will increase monthly payments due to a higher mortgage amount. If a borrower has a LTV over 80% and they do not qualify for insurance, they will not be able to obtain the low interest rates offered by conventional lenders; thus, they will need to apply for a mortgage with higher interest rates from alternative lenders.

At Maple Leaf Mortgages, we will help you get the best mortgage rates and products possible. Using our strong relationships with a variety of institutional and private lenders, we are able to arrange financing to 100% LTV. Call us at (905) 886-5323 or email Robin for more information and arrange a free consultation with us today.

Written by Christy Lee

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