Loan to Value Ratio Determines Future Mortgage Loans

By Joe Taylor Jr.
CMR Columnist

When refinancing your home, mortgage lenders often calculate "loan to value" to assess future payment options. Loan to value is a percentage expressed by your initial mortgage divided by the appraised value of your home.

Unless your loan to value percentage remains under 80 percent, you are considered high risk by lenders and your home equity decreases. Once a lender possesses your loan to value percentage, he or she can determine what type of mortgage will be in your best interest.

Interest Only Mortgage Popularity Spikes

In the last five years, interest only mortgages regained popularity among homeowners. According to research from Loan Performance, 32.8 percent of nonconforming loans sold to investors are interest only mortgages.

An interest only mortgage allows flexibility by giving you additional payment options. For the first five to ten years, home owners pay interest only. Homeowners can still make extra payments to lower the mortgage principle that follows. Owners with interest only mortgages are advised to choose fixed rates for 30 years to limit higher payments after the interest only period is over.

How to Know if an Interest Only Mortgage is Right for You

Interest only mortgages are appropriate for homeowners:
  • Whose income is mostly in the form of commission or bonuses
  • Who expect an increased salary during course of loan
  • Who invest their savings and are confident their investments will make money
Depending on your loan to value ratio, your lender will help you decide in an interest only mortgage could benefit your home equity.

Sources
Investor Words
Orange County Register
Wikipedia

About the Author
Joe Taylor Jr. coaches musicians, entrepreneurs, and other adults that want to shift their careers. He holds a Bachelor of Science in Communications from Ithaca College.

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