There are a wide-range of 85% mortgages available with great interest rates for those with smaller deposits.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE
80% LTV mortgage are on the higher end of the loan-to-value mortgage scale, but that are far more common than 95% or 100% LTV mortgages, but how do they work and what should you be aware of?
An 80% loan-to-value mortgage is one of the more common mortgages in the UK. The ‘80%’ bit refers to the ration between the amount to be borrowed (80%), and the total cost of the house (100%).
So if the house is worth £100,000, a deposit of £20,000 and a mortgage of £80,000, the LTV of the mortgage is 80%.
The right LTV for your needs depends on two things; how much you have for a deposit and how much you can afford on a monthly basis.
The monthly cost of the mortgage is made up of the total amount borrowed, the term, and the interest rate.
As a rule of thumb the interest rate will be higher with higher LTVs, so a 70% LTV mortgage will tend to have a lower interest rate than an 80% LTV mortgage because it’s riskier for the lender.
While increasing the term will lower the monthly repayments, it will also increase the overall cost of the mortgage as the interest is being charged for a longer time.
Before deciding on the size of your deposit you should also consider keeping some savings. Not only are there costs associated with a mortgage – lender’s fees, solicitor’s fees, and potentially stamp duty – but owning a house means you should have some savings to cover repairs.
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