Loan To Value Ratio For Refinancing

Loan To Value Ratio For Refinancing

The loan to value ratio can be utilised to gauge risk involved before any home or car loan is approved.  The higher it is, the more risk there is. 

Zoe is considering ways to pay for a major medical procedure. Instead of applying for a personal loan from the bank she is leaning more towards tapping into her home loan- which is fully paid off. She knows that she will be guaranteed the best rates because she has an impeccable repayment history.  

While doing her research into what else she needs to consider for approval.  

How to calculate the loan to value ratio for refinancing: 

Divide the amount of the loan by the value of the property or car. The percentage is important, whether purchasing or refinancing. 

More about loan to value ratio for refinancing: 

The more equity you own, the better the position. Loan providers are more likely to regard you as a lower risk. So if the amount that is being refinanced is less than 80% of the value, then this is ideal. If you are opting for this in order to pay for renovations or to cover a major medical procedure, you will want to make sure that you do your research beforehand. 

The interest you are charged is a factor of this ratio. The lower the ratio is, the more equity you have, which ultimately means that a finance provider is more prepared to take a risk on providing you with the finance you need. A higher ratio can be equated to less equity. 

The calculation is also used to determine if there are requirements of any extra protections. 

The most ideal solution is when your equity is more than 20% and you have an excellent repayment history. This is more likely to result in a favourable position for you.

Categories: Financial tips