There are a wide-range of 85% mortgages with great interest rates for those with smaller deposits.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE
85% 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 85% loan-to-value mortgage means your total borrowing is 85% of your property value. The remaining 15% is the deposit you put forward.
A higher loan-to-value ration typically means higher interest rates, as the lender takes on a greater risk.
It is also more expensive for the borrower over the lifetime of the mortgage as not only is the interest rate higher, but the total amount to be paid back is also higher.
Therefore an 85% mortgage will usually be more expensive than an 80% mortgage of the same amount, but cheaper than a 90% mortgage.
What you can afford from a mortgage is largely determined by what you can afford to put forward as a deposit and what you can afford to pay back each month, but not exclusively.
When taking out a mortgage you should always leave yourself some wiggle room – typically 5% to 10% is advised – to account for extra and unexpected costs.
For instance, if you property is over the threshold you will have to pay stamp duty. There are also solicitor and mortgage arrangement fees to consider, as well any potential repairs you may have to undertake (such as repairing a boiler or a leaky roof).
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