There’s a lot of terminology to understand when it comes to remortgages. But no other term is as important as your LTV.
The LTV is the single factor that gives you most power when remortgaging.
LTV is the acronym for Loan-To-Value.
If you’re looking at remortgaging to a better deal, understanding, and calculating LTV is essential
What is the Your Remortgaging LTV?
Loan-To-Value describes the size of your mortgage compared to the value of your property.
A good way to start to calculate your LTV is to look at property sites like Rightmove and Zoopla. You’ll see how much similar homes in your area have sold for recently.
Then look at your mortgage statement and determine how much you still owe of your existing loan.
Your LTV covers what piece of the value of your house your mortgage covers and what is already paid off.
These figures will make it clearer for you. Let’s say you’re after a remortgage of £150,000 on a property worth £200,000. In this case, the LTV of the mortgage you want is 75%. The loan is equal to 75% of the value of the property, and your deposit covers the other 25%.
As you pay off your mortgage your LTV will improve. Your monthly payments will eat into the size of your loan. All being well, your house price value will increase too.
Since 1993, national house prices have risen from an average of £62,333 to £247,000. That is an increase of around 400%. This is despite the global recession of 2008 and other dips and bumps.
What’s the Big Deal about Your LTV?
Your LTV is a big deal because the better the numbers are, the better the remortgaging deal you’ll get offered.
This is because mortgage lenders set their rates according to different LTV ‘bands’.
Mortgage LTV’s range from 50% up to 95%.
Take a look at the price comparison tables for any one lender. You’ll see that there’s one rate for applicants at 60% LTV, another for 70% LTV and another for 80% LTV etc.
The lower your LTV, the better the rate you’ll be able to secure. This is because for the mortgage lender, you’re a safer bet.
If you can provide a larger deposit or have equity built up in your property, you’re less risky than a borrower with a small deposit. Your reward will be a lower rate of interest. That means lower monthly repayments.
A lower LTV also means that you’ll have more product options. If you can get your LTV down to 60%, then you will have many more lenders to choose from.
Conversely, as the LTV of the remortgage you’re looking for gets bigger, your options will be more limited.
Before the 2008 financial crisis, some lenders did offer 100% LTV mortgages. These are now seen as too high risk.
How can I improve my Remortgaging LTV score?
The obvious way is to pay off as much of your loan as fast as you can!
Another option is to increase the value of your property. Adding an extension or a loft conversion is likely to increase the value of your property. So you’ll lower your LTV.
Another is to use your savings. At every 5% threshold at which you lower your LTV from 95% down to 60%, deals improve.
A good tip, if you are remortgaging and do have the spare cash, is to do this. Say your LTV is now 62.5% but you have enough savings to reduce it to 60%. If you know you’ll get a cheaper deal, use any funds squirelled away to lower your LTV down to the next 5% notch. On the average home, the rate cut could cut your mortgage repayments by up to £1,000 a year.
So, as you can see, Maximising the power of your LTV can represent big savings when it comes to remortgaging!
Are you interested in learning more about remortgaging? To have an informal talk about your options, we’ll give you personalised, impartial advice on your remortgage if you would like to contact us here.