Your home may be repossessed if you do not keep up repayments on a mortgage.
What does Loan-To-Value (LTV) mean?
The definition refers to the size of the mortgage as a percentage of the value of the property i.e. a £150,000 mortgage on a house valued at £200,000 would mean that the LTV would be 75%.
The difference between the mortgage balance and the value of the property is called equity
Loan-to-Value becomes a key element when looking to apply for a mortgage as lenders will offer the lower rates on lower Loan to Value products and higher rates on higher Loan to Value products.
When on a repayment mortgage, your mortgage balance will reduce over the years, resulting in higher equity and less lending, giving a lower Loan to Value ratio. On an interest only mortgage, the balance of the mortgage remains the same throughout the term and the only way for the Loan to Value to decrease would be for the value of the property to increase. In both repayment and interest only scenarios, should the value of the property decrease, then the Loan to Value will also decrease.
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