In order to buy a property, you will need to put a certain percentage of your savings down as a deposit. If you have 25% of the total funds needed to buy the property you like, you will be in the middle range of Loan to Value thresholds. This is a good thing.
Find out why this is and how 75% Loan to Value mortgages work.
A 75% Loan to Value mortgage is where the potential borrower is seeking 75% of the total money needed to buy a property. They will have the remaining 25% saved as a deposit.
For potential borrowers in this position, you should be able to find a mortgage deal charged at a competitive rate, as almost all mortgage providers will have a product available for people with 25% available for a property down payment.
Your risk of falling into negative equity, although still possible, is more unlikely for those with a considerable deposit. For this reason, 75% Loan to Value mortgages offer better interest rates than those seeking an 80% LTV mortgage or higher.
To find out more about Negative Equity and how you can manage the situation, should this happen to you, take a look at our guide here.
With mortgages of 75% of the property price, you can take out either a repayment or interest-only mortgage. With repayment mortgages, (where your monthly payments pay towards both the capital and interest of the loan) you can build equity. Over time, your loan-to-equity threshold will gradually fall. Allowing you to remortgage for a lower interest rate, provided your financial circumstances (such as income) stays the same.
Take a look at our Guide to Remortgaging for more information.
If this sounds like an attractive prospect for you, you could try and secure a mortgage deal which allows you to make overpayments some months, without incurring an early repayment charge. You can also choose to pay back the interest at a fixed or variable rate. To see more on the different ways in which mortgage holders can make their interest payments, read our Guide to Mortgage Types.
Getting an interest-only deal may be more difficult. To secure one of these, you will have to prove to the lender that you have a credible repayment vehicle to pay back the mortgage, in full, at the end of your mortgage term, as well as a high minimum income (around £75,000 pa, in many cases).
Brenda has a 20% deposit for a house. She has looked at mortgages and has found a deal for 6.49%. Just as she was about to apply, she came into a bit of money and now has a 25% deposit (for a house that costs £150,000). She’s looking at mortgages for 75% LTV and has seen a deal charging 5.49%. Brenda needs to decide if she wants to use the extra money for a larger deposit or a new bathroom when she moves in. If she takes the 6.49% deal, her monthly mortgage payments will be £87 more than if she took the 5.49% mortgage. Brenda decides that she can wait to renovate the home and would prefer the savings in her monthly bills instead.
Independent mortgage brokers are on-hand to offer you free quotes and mortgage advice, to help you find the best deal. Get in touch today.
My biggest concern was finding a mortgage with no strings attached. My options were clearly explained to me and I felt confident about the decision. Alice Silverman, Stoke-on-Trent
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THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT.
IF YOU ARE THINKING OF CONSOLIDATION EXISTING BORROWING YOU SHOULD BE AWARE THAT YOU MAY BE EXTENDING THE TERMS OF THE DEBT AND INCREASING THE TOTAL AMOUNT YOU REPAY.
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