A 100% mortgage can help you get on the property ladder with no deposit, but there are specific criteria you need to meet.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE
A 100% LTV mortgage is one of the most controversial types of mortgage available, but how do they work and what should you be aware of?
A typical mortgage will calculate how much the lender can afford to lend you at a given rate. So, if you earn £30,000 a year, a lender will usually be able to lend you 4 times that; £120,000.
Now, if you had £20,000 saved for instance you would be able to add that to the total you can borrow to get a property. In our example, a £140,000 house with £120,000 of borrowing is an 85% LTV, as the ratio of borrowing to house value is 85%.
But what if you have no deposit? What if you want to borrow the full 100%? That’s what a 100% LTV mortgage is for.
Unlike a typical mortgage a 100% LTV requires no up-front deposit. While this is fantastic for those with no savings looking to get on the property ladder, it does typically mean the lender will charge a higher level of interest to compensate for the additional risk.
Therefore, if you do have a deposit you are more likely to get a cheaper mortgage overall by putting forward some money and going for a lower loan-to-value mortgage.
Furthermore, as 100% LTV mortgages are high-risk they are often limited. They may be limited to existing borrowers, or in some cases they are only released in a limited amount to help restrict the overall risk the lender is taking on.
In some cases 100% LTV mortgages may only be available if you have guarantor – namely someone willing to take on the risk associated for the mortgage.
This means that they will take responsibility if you fail to keep up your payments, but this could lead to them having their home repossessed.
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