Second Mortgage LtvMortgage Ltv second
If for example you have a mortgage of 150,000 on a home valued at 200,000 pounds, you have a loan-to-value of 75% - so you have 50,000 pounds as your own capital. As your mortgage balances fall as you pay them back (unless you're on an interest only mortgage where your credit stays the same throughout the term), home values can do what they want - and that can cause you trouble.
The LTV is especially important for beginners who want to make their first moves on the real estate manager. You may not have much cash as a first purchaser that you can put up as a down payment, which means that the loan-to-value you need can be quite high. This is called "negative equity" if you have more debt on your mortgage than your real estate is valued at.
Think of the 200,000 pound piece of land again. There has this 150,000 mortgage on it - so 75% loan-to-value - but then something happens: House Prices fall. All of a sudden the home that was £200,000 is now £150,000, which means the loan-to-value is now 100%. Should the price drop even more, the debtor would be in deficit and would end up with a higher mortgage than the value of the real estate.
It is important, as you can see, to keep your loan-to-value as low as possible - especially if you are nearing the point where you need to take out a mortgage. You have two options for influencing your mortgage lending value: That the less of a mortgage you have, the better. this will leave you more exposed should house prices go down and your LTV doesn't change. What's more, you'll be able to get a mortgage on your LTV.