When a homeowner goes to seek a remortgage they will always see the term LTV which means loan to value. It is an easy way to express the amount that a lender is willing to give a borrower. The higher the loan in relation to a property’s value the greater the risk that is incurred by the lender and this will mean higher interest rates. More risk by the lender will always mean higher interest paid on a loan. To lower the interest rate offered in a mortgage or remortgage loan a home buyer or homeowner must seek to lessen the risk to the lender and therefore borrow less in relation to the value of the property.
The value of a property is determined by a professional valuation. This valuation will give the lender an exact monetary value of the property that the homeowner is seeking a remortgage for and will determine the amount the homeowner can borrow. If the homeowner has been paying on the property for a long time then they have lowered the debt of the property. In addition if property values have increased in the area where the property is located then the value of the home has risen since the home was first purchased. This means two things: 1) the homeowner has more ownership in the home and can seek a low LTV remortgage that will give them the better of deals being offered and 2) the homeowner can seek a higher LTV and release equity in the property to obtain cash. The cash obtained can be used at the homeowner’s discretion. Of course an equity release means the homeowner will own less of the property than before they obtained the equity release.
The higher the value of the property then the more a homeowner can seek in a remortgage. The LTV offers of a lender will determine if the lender will offer a remortgage deal to a homeowner. Homeowners seeking to remortgage that have very little equity in their home because they have not been paying on their mortgage debt for long will have to offer cash along with their remortgage just as they did when they first purchased a home. If the homeowner does not have a property that has increased in value enough to meet a LTV remortgage deal then they will have to offset the remortgage with cash.
Homeowners that are in negative equity cannot obtain a remortgage because they cannot borrow money and be in debt with the lender for an amount that is more than the value of a property. Again, this would be a case where the homeowner would have to be able to offer cash to pay down the debt to the level where the debt owed was less than the property’s value and the remortgage fell into the LTV remortgage being sought.
An easy way to look at a remortgage offer is to consider what the value of the property is for which a remortgage is being sought and understand that the lender will only offer up to a certain percentage of the value of a property. If the LTV is 80 per cent on a remortgage then the lender will only willing to offer a loan worth 80 per cent of the value of the home.
You can find more about LTV and other remortgage terms, as well as other helpful educational remortgage information in our Remortgage Guides section.
