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A mortgage refinance is just that a move to pay-off your mortgage by taking out a new loan on your home. Refinancing a mortgage therefore simply means replacing an old mortgage with a new one.

Should You or Shouldnt You?

Theres no simple yes or no answer to this question. It would be better to leave it at it depends on your situation, priorities and preferences. Generally, however, you should refinance if you can save money by so doing. This can come about in two ways.

Lower interest costs: First, if you are refinancing to a loan with a lower interest rate than your current mortgage, then you can conceivably save on interest rate payments and therefore be able to make more payments towards the principal, increase your equity at a faster rate and pay your loan much earlier than you expected to do so.

For example, if the current annual rate of interest of your mortgage is 8.25%, your monthly interest rate is around 0.6781%. If your current mortgage balance is 80,000 and you have an interest-only mortgage, then youre expected to make an interest payment of around 542.48 monthly.

You will save money on interest payments if you manage to refinance to a lower rate. If you manage to obtain a mortgage refinance loan with an interest rate of only 6%, for example, your monthly interest charge will become only 394.52. This is a savings of around 147.96 every month on an interest-only payment scheme.

Lower future interest costs: Second, if you have a mortgage with an increasing variable rate of interest, then you can gain savings on future interest rate payments through refinancing your mortgage with a fixed-rate loan program. By doing this, youll be able to keep your mortgage interest rate and thereby your interest costs at a constant level.

For example, if you have a mortgage whose interest rate is currently 6.5% and a balance of 80,000 (as in the previous example), monthly interest payments would be around 427.40. However, if your loans index rate (the rate on which your actual interest rate is based) increases by one point and becomes 7.5% the next year, then your monthly interest charges on the same balance would be 493.15. If the year after that, your interest rate increases by another point, your interest rate will become 8.5%. Assuming that you still havent made any payments towards your principal, your monthly payments will become 558.90.

In three years, therefore, your interest rate payments will change from 427.40 to 493.15 then to 558.90. Assuming that each particular interest rate sticks around for a year, your interest rate payments in three years will amount to 17,753.42.

On the other hand, if you changed to a fixed rate of interest now, you can save yourself money on future interest payments. For instance, you can replace your 6% adjustable rate mortgage with a 7% fixed-rate mortgage refinance. This will actually make your current interest rate payments greater at 460.27 but this will lead to savings of around 32.88 next year and 98.63 the following year. In this fixed-rate loan, your interest payments in three years amount to only 16,569.86 yielding a total savings of 1,183.56 in interest rate payments.

Of course, current and future savings arent the only considerations when deciding to refinance. You should also weigh your savings with the costs of refinancing. When you refinance, you will also pay various loan processing fees as well as the origination fee. Compute the costs of a mortgage refinance and compare it with your projected savings. Refinance only if your savings will be greater than the costs.

One of the most common things that borrowers ask lenders is what their rates will be. The rates a lender has is very volatile, it is not always the same. So the lender will always have to wait via fax, E-mail or a secure website for the rate sheet that comes from their company. Because it is volatile the rates could even change 5 times in one day. As a borrower you have no right to see the rate sheet, this is basically the advantage or a way for the lenders to do the business. The rate sheet will always show the interest rates and the cost expressed in points. A point is equal to one percent of the loan.

The cost of the rate usually vary depending on the interest rates, higher rates are cheaper compared to lower rates. This is done because it helps the lender to earn more over the interest for the period of the loan, so lenders charge less cost. When customers want a lower interest rate, they are charged with higher cost because lenders will earn fewer in the longer period of the loan.

The point system would usually work in this way: Zero points mean par value or pricing. The numbers in parenthesis means premium or rebate. Premium or rebate means that the money is paid back to the loan officer or where the loan originated at a rate instead of having a cost.

The loan officers are paid by commission. The earnings of the loan officer and the branch are split between them. The fees that are not subject to the points are not split up and instead directly go to the branch.

Before giving you his quotation price, the lender will add on the profit he and his branch would like to make. Dont worry however as there limits are set by the company as how high or much he or she can add to his cost. For the lender, he or she should not worry about the limitations because between the minimum and maximum there is a great deal of flexibility.

An example of this situation is when the loan officer wants to earn 1 point. When he gives you the quotation, it will already include the one point to the cost of the loan. So if the lender has 7.125% of interest rate, the lender will earn 1 point and have some left over money. The left over money is then used to pay the processing fees and the documents.

More informations are available at http:www.debt-credit-00.infomortgage-refinance

Your FICO score will be a determining factor in the setting of the interest rate on your mortgage. Put simply, your FICO score is a risk rating on you, the borrower. Data related to your financial responsibility is aggregated by institutions that you do business with, and it is this data that comprises your FICO score or credit score. So what exactly makes up your FICO score and how will it affect your mortgage interest rate and your monthly payments?

There are five basic components with respective percentages that make up your FICO score. They are payment history 35%, amounts owed 30%, length of credit history 15%, new credit 10%, and types of credit used 10%. As indicated by the aforementioned percentages, payment history carries the most weight in the composition of the score. Mortgage lenders need borrowers with exceptional payment histories so they can forecast future profit. To secure future profits, a lender needs to know that borrowers will be able to pay well into the future. The servicing of past debts is an excellent predictor of the servicing of future debts; consequently, if you have been on time with the vast majority of your debt payments in the past, you will be a profitable consumer into the future, and therefore an acceptable mortgage risk.

Payment history does not just include the payment history on prior mortgages. It includes a long list of financial data; everything from the most obvious-credit cards- to the not so obvious, such as how completely you fulfilled your promises of repayment on a past due shopping credit line. Data that is an extension of direct financial transactions will also be included in the payment history component of your credit score. Examples of this data are liens, garnishments, judgments, and bankruptcies. Understanding how to build a complete profile of yourself, by yourself, is crucial to your financial success in the 21st century. If you entered a financial transaction with credit or an account held by computer data bases, any and all of this information will be used by lenders to asses you as a risk to profitability.

Amounts owed comprises 30% of your credit score, and even if lenders dont directly use the variables that constitute the amounts owed on a FICO score they will definitely be using some measure of your current debt and servicing of that debt to determine if they will be paid in full and on time. Before taking out a mortgage, paying off as many debts as possible is a great idea. Being less of a risk is quite desirable and will allow you to shop around for the most competitive rates. Your credit score is a good indicator of you as a risk to a lender, and accordingly institutions will use it as a way to set your mortgage interest rate, and consequently your monthly loan amount. A common analysis, used to illustrate the vast difference in rate and payments terms, on a loan, is to analyze a 300,000 loan and what a good credit score and a bad credit score would have to pay.

On a 300,000 loan, a 760-850 credit score can expect to pay about 5.5% and a 1,700 monthly payment. A credit score of around 500 can expect to pay approximately 10% and 2,600 per month-quite a difference in monthly payments

If you have ever gone looking for quotes on a mortgage in order to find out just what a mortgage might cost you, you have probably had the term points thrown at you. So what are points?

Each point is a fee and it is based on one percent of the total amount of the loan. There are a couple of different points, there are discount points and then there are origination points and lenders do not all charge the same amount of these points. Some lenders will charge you one point while others may charge you three.

Discount points are the points that are like prepaid interest on your loan that you are getting for your new home. Every point that you purchase will lower your interest rate to some extent. Most borrowers will be able to choose just how many points they want to purchase. There is a limit of course, usually around four points. The number of points that you choose to buy will depend on how much you want to lower you interest rate. One especially good point of these points is the fact that they are tax deductible.

Origination fees are different. These fees are used in order to pay for the costs of giving you the loan in the first place. You don’t get anything out of these points so most borrowers don’t like them as they are not even tax deductible. If you can try to get a loan that does not require you to get these types of points. Discount points on the other hand can be useful to you.

The choices that you make concerning the points to get will be affected by a couple of different things. For example, how long are you going to be living in this house? And how much of a down payment are you going to be putting down? If you are thinking of settling into this house for the long haul then perhaps discount points are a good way for you to go. Lowering your interest rate for years to come is always a good thing. Before making your decision take stock of your situation and see what suits your needs best.

New home search in California is made much easier with a mortgage loan pre-approval that lets you know the maximum amount obtainable.

With a California home loan pre-approval letter, real estate agents are more inclined to work with you, and show properties in the specific price range of the maximum mortgage. Sellers and listing agents also take an offer more seriously if the home mortgage loan is already pre-approved.

Many first time home buyers confuse being “pre-qualified” with “pre-approved.” Pre-qualification is a casual process, where the potential buyer how much may be borrowed based on income, existing debt, and cash down payment.

A pre-qualification may be a form letter or personalized, but will contain disclaimers to protect the lender in case the borrower fails to qualify. Some real estate agents feel that pre-qualification letters say little more than you have contacted a California mortgage company. Before a lender will make the loan, a formal loan application will be required.

In contrast, pre-approval letters have far more validity and indicate to the seller that the borrower has passed the credit check and have preliminary loan approval. To obtain pre-approval letter a formal loan application is submitted with all the relevant documentation. Everything is verified and credit is checked, then the California mortgage lender agrees in writing to make the loan. The loan will be subject to a satisfactory property appraisal and title search.

A formal loan application process is an eventuality, so we recommend obtaining a loan pre-approval in advance. By doing so, you avoid any disappointment of making offers outside of your price range, and get far more cooperation from agents and sellers because they will feel that their time is not being wasted.

For more information on obtaining a pre-approval for a California home mortgage loan please call Goldmedalmortgage at 866 398 4664 or go to:
http:www.goldmedalmortgage.com

To understand loans and mortgages we need to understand loan limits first. If your loan amount exceeds the amount below, you will qualify for a Jumbo Loan, which carries higher interest rate.

One-Family (single family homes) 417,000
Two-Family(duplex) 533,850
Three-Family (triplex) 645,300
Four-Family(fourplex) 801,950

FIXED Loans:

30 Year Fixed Mortgage Rates
This loan program is fixed for 30 years. Your interest rate will not change for 30 years. This is ideal for people who plan to stay at their present property for a long period of time.

20 Year Fixed Mortgage Rates
Fixed for 20 years. Your payment will be higher than 30 year fixed loan becuase your loan term is only for 20 years. Interest rate will not change for 20 years.

15 Year Fixed Mortgage Rates
15 year fixed loan has a loan term of 15 years and will not change during this period. Your monthly payment on this loan program will be much higher than 20 years fixed or 30 years fixed. Use this loan program if you plan to sell your home in 5-8 years. Interest rate will not change for 15 years.

ARM (Adjustable Rate Mortgage)

ARM Loans are fixed for a certain period of time, where after that period ARM loan becomes an adjustable loan. How do they work?

Each ARM Loan Program has these options:

1) Index: Most comon index-LIBOR

2) Margin: Is given to you by your lender, and it is the difference between the index rate and the interest charged to the borrower

For example 51 ARM. This loan is fixed for 5 years after which in 6th year it becomes an adjustable loan. Your loan officer will tell you what your index is and what your margin is. Usually 51 arm is tied to 1-year treasury index and margin is around 2.00%-3.00%

Your index + margin = Fully Index rate . Your new note rate (interest rate) after 5th year.

What about the 6th year? What would your payment be?

Let’s say that your loan officer told you that your margin is 2.5% with 1 year treasury index. You will have to look up 1 year treasury index for a specific month.

1 year treasury as of Oct.2005 is 4.18, and you know that your margin is 2.5%. Therefore you new interest rate is 1 year treasury 4.18% (index) + 2.5% (margin) = 6.68% for the begining of 6th year.

Index rate are move on monthly basis, therefore your payment may flunctuate each month. In most cases banks wills end you a statement advising you that your rate will change.

3) To protect consumers from high index rates, lenders implemented a CAPS.

An example of this is a 26 cap, which allows the interest rate on your ARM loan to go up or down by no more than two percent every adjustment period, and has a total limit of six percent for cumulative changes. Therefore a 26 cap on a 5% ARM will allow a maximum rate (6 + 5%) of no more than 11%.

In some cases you will see 226, which means 2% adjustment with 2 year prepayment penalty and total of six percent of cumulative changes.

4) With an arm you can have either a fixed rate or you can choose an Interest Only structure loan.

11 ARM Mortgage Rates
1 year ARM (Adjustable Rate Mortgage) is fixed for 1 year and in 2nd year it becomes an adjustable.

31 ARM Mortgage Rates
3 year ARM (Adjustable Rate Mortgage) is fixed for 3 years and in 4th year it becomes an adjustable.

51 ARM Mortgage Rates
5 year ARM (Adjustable Rate Mortgage) is fixed for 5 years and in 6th year it becomes an adjustable.

71 ARM Mortgage Rates
7 year ARM (Adjustable Rate Mortgage) is fixed for 7 years and in 8th year it becomes an adjustable.

101 ARM Mortgage Rates
10 year ARM (Adjustable Rate Mortgage) is fixed for 10 years and in 11th year it becomes an adjustable.

Interest Only Loans

For example, if a 30-year fixed-rate loan of 100,000 at 8.5% is interest only, the payment is .08512 times 100,000, or 708.34. This is an example of interest only payment.

Each loan payment consists of Interest and Principal. Here you will be paying an interest each month and your principal will be adding to your balance, thus increasing it. You may also pay both principal and interest.

If a lender offers you an Interest only Loan these loans are tied to an index just like ARM loans.

MTA Index: The MTA index generally fluctuates slightly more than the COFI, although its movements track each other very closely.

. 1 Month MTA ARM Mortgage Rates
. 3 Month MTA ARM Mortgage Rates
. 6 Month MTA ARM Mortgage Rates
. 12 Month MTA ARM Mortgage Rates

COFI Index: This index rise (and fall) more slowly than rates in general, which is good for you if rates are rising but not good for you if rates are falling.

. 1 Month COFI ARM Mortgage Rates
. 3 Month COFI ARM Mortgage Rates

LIBOR Index: LIBOR is an international index, which follows the world economic condition. It allows international investors to match their cost of lending to their cost of funds. The LIBOR compares most closely to the CMT index and is more open to quick and wide fluctuations than the COFI.

. 6 Month LIBOR ARM Mortgage Rates
. 12 Month LIBOR ARM Mortgage Rates

Pay Option ARM Loan

Pay Option ARM in a new loan program allowing customers to choose from up to 4 different payments. This loan program is part of an ARM, but with added flexibility of making one of the 4 payments.

Your intial start rate varies from 1.000% to anywhere around 4.000%. The intial start rate is held only for one month, after that interest rate changes monthly.

4 major choises are:

1) Minimum payment: Fot the first 12 months interest rate is calculated using the start rate after that interest rate is calculated annually.

Example:

Loan Amount: 200,000.00
Initial Rate: 1.25%
Index: 3.326 (MTA as of October 2005)
Margin: 2.75%
Payment Cap: 7.5%
Fully Indexed Rate: 6.076% (ndex + margin )

Minimum Payment Changes:
Year 1 666.50 Minimum Payment
Year 2 716.49 = 666.50 + 7.50%
Year 3 770.22 = 716.49 + 7.50%
Year 4 827.99 = 770.22 + 7.50%
Year 5 890.09 = 827.99 + 7.50%

The Option ARM’s 7.5% payment cap limits how much the payment can increase or decrease each year, except for every fifth year (beginning in the 10th year on certain programs), when the cap does not apply. In the event your balance exceeds your original loan amount by 125% (110% in N.Y.), the payment amount may change more frequently without regard to the payment cap.

Becasue you are paying “minimum payment” this option will defer a payment of an interest which will be added to your balance.

Minimum Payment Adjustment Period: The minimum payment is usually set to 12 months, unless negative amortization limit is reached.

Minimum Payment Cap: This is a limit on how much the minimum payment can change. Your payment cap will be 7.5% for the first five years. On your next payment due, your minimum payment cannot increse or decrease more than 7.5%. If it does than a loan is recast.

Recast (Recasting) or re-calculating your loan is a way of limiting negative amortization (neg-am). Option ARM’s recast every 5 years. When the loan is recast, the payment required to fully amortize the loan over the remaining term becomes the new minimum payment

2) Interest Only Payment: With Interest Only you will avoid deffered interest, becausue you are paying principal and interest. If you pay only Interest or Principal your loan balance will increase because you are adding either pricipal payment or interest payment to your loan balance, thus leading towards Neg-Am Loan.

Your payment may change on monthly basis based on ARM index (LIBOR,COFI,MTA).

3) Fully Amortizing 30-Year Payment: It’s calculated each month based on the prior month’s interest rate, loan balance and remaining loan term. When you choose this option, you reduce your principal and pay off your loan on schedule.

4) Fully Amortizing 15-Year Payment: It is calculated from the first payment due date.

Negative Amortization Loan (Neg-Am Loan)

Negative amortization loans calculate two interest rates. The first is called the payment rate the second is the actual interest rate. The true interest rate is calculated as simply the index plus the margin without periodic caps. Borrowers are given a choice of which rate to pay. Thus advertisers of negative amortization loans often refer to these loans as “payment option” loans.

A loan that allows negative amortization means the borrower is allowed to make a monthly mortgage payment that is less than the interest actually owed during that month. For example, let’s say we have a 200,000 loan with an adjustable rate that’s currently sitting at five percent. Simple interest on this loan is easy to calculate. Multiply the interest rate by the loan amount and you have the annual interest of 10,000. Divide 10,000 by 12 months and the monthly “interest only” payment is 833.33 or simply here is the formula for your monthly payment for interest only loans: loan balance x interest rates 12 = monthly payment.

Now, let’s say that there’s a provision in the loan documents that allow the borrower to make a minimum payment based on a “payment rate” of four percent. So your lowest payment would be 666.67 because the “payment rate” is based upon four percent, not the actual interest rate, which is five percent.

So if you make make the lowest allowable payment you are actually losing 166.67 in equity. The balance of the loan increases to 200,166.67.

Exotic Mortgage

You may have heard this term before. So what are they?

The latest and most exotic mortgages out there include:

1. The 40-Year Mortgage: This is similar to a 30-year fixed rate mortgage, except the payment is being stretched over an extra 10 years. The lender will charge a slightly higher interest rate, as much as half a percentage point.

2. The Interest-Only Mortgage: With an interest-only mortgage, the lender allows the borrower to pay only the interest for the first so many years of a mortgage. After the grace period, the loan essentially becomes a new mortgage with the interest and principal being stretched only the remaining years. Please refer above for Interest Only Loans.

3. The Negative Amortization Mortgage: This interest-only type of mortgage allows a buyer to pay less than the full amount of interest. The difference between the full interest payment and the amount actually paid is added to the balance of the loan. Please refer above for more information.

4. The Piggy Back Mortgage: This is actually two mortgages, one on top of the other. The first mortgage covers 80% of the property’s value. The second covers the remaining balance at a slightly higher interest rate.

5. 103s and 107s: You may not need to save for a down payment at all. You could borrow 3% or 7% more than your home is even worth. These loans give you the option of borrowing money needed for closing costs and moving costs. You can include it all in the mortgage.

6. Home Equity Line of Credit: These aren’t just for those who own a home! They are commonly known as HELOCs, and they can finance an original home purchase using a credit line instead of a traditional mortgage. HELOCs are variable-rate mortgages tied to the prime rate. If you use this mortgage as your first mortgage, all of the interest is tax deductible.

As loan officers and mortgage brokers there are many avenues to go down in order to obtain mortgage leads for potential loan customers.

Activity is the key to obtaining leads in any sales industry. Sitting idle will get you no where except hungry and out of a job.

For instance, if you have a one oclock appointment with a customer, dont spend your day waiting around to leave for the appointment, build appointments in and around the vicinity of your one oclock appointment.

This can be accomplished in the following way. Cold calling.

The day before your appointment, spend a couple of hours making some calls to potential customers in the neighborhood of your appointment.

Let them know that you will be in the area and you would like to stop by to introduce yourself and drop off some brochures. Keep it short and sweet.

In the mortgage industry your activities consist of many things to obtain leads. Such as chambers, rotaries, customer referrals, family, friends, community involvement, etc.

That being said, it is always nice to have a back up plan for slow times such as summer months and the holiday season.

This is where mortgage lead companies come in.

But just dont go and invest with any old lead company, you want to make sure you get your moneys worth, so do your research.

Check out the mortgage lead companys web site and speak with someone in their customer service department. Find out how they obtain their leads and what the quality of their leads is.

If the mortgage lead company is not obtaining their leads from web sites they own and operate on their own, than most likely they are recycling old leads and will be selling you old junk.

Remember, if you are not happy with the information you gather on their web site or through their customer service department, chances are you wont be happy with the leads either.

Many things affect mortgage rates – which is why they fluctuate. So it pays to understand a little about how mortgage interest rates are generated. The more you know about the economic factors that change rates, the more prepared you are to find the perfect home loan at an interest rate that’s perfect for you as well.

Market Conditions
When the Federal Reserve Board raises or lowers rates, there is usually an impact on the rate you will get for your fixed rate home loan, although it’s not as direct as it may seem. The Federal Reserve adjusts federal funds rate, which is the rate at which banks lend to each other. When federal funds rate decrease, we spend more, which can actually increase inflation. Mortgage rates tend to be longer-term rates that are affected by concerns about inflation, as well as other economic indicators like job growth. So it’s more accurate to say that mortgage rates are indirectly affected by the Federal Reserve Board, and more directly affected by what happens every day in active public markets. The market sets the interest rate, and then a margin is added to the index to determine your final mortgage interest rate.

Timing
Since interest rates change daily, the longer a lender locks in a rate, the higher the risk that the market will move against them. Therefore, you pay more (in points) for a longer guarantee. If interest rates appear to be on an upswing, it makes sense to lock in your rate. If they are steadily dropping, it makes sense to float your interest rate so that you can take advantage of a shorter lock-in period, saving you money.

Points
You can often receive a lower mortgage interest rate by paying extra points – mortgage costs that are up-front rather than built into the interest rate. Each point equals one percentage point of the total amount of the loan. For example, one point on a $100,000 loan is the equivalent of paying $1,000 to ensure you get a lower interest rate that saves you money over the life of your loan.

Credit and Payment History
A less-than-perfect track record may make you seem like a high credit risk, which means you’d only be eligible for higher mortgage interest rate loans. If you find yourself in this position, don’t worry – we have loans that could still help you make your dream a reality.

Credit and Payment History
A less-than-perfect track record may make you seem like a high credit risk, which means you’d only be eligible for higher mortgage interest rate loans. If you find yourself in this position, don’t worry – we have loans that could still help you make your dream a reality. Learn more about Bad Credit Loans.

Debt-To-Income Ratio
Your monthly debt obligations are calculated against your current income. The higher the ratio, the higher the risk which could mean a higher interest rate.

Loan-to-Value
The loan-to-value is the amount you need to borrow versus the value of the home you want to buy. The more equity you have or the more money you give as a down payment decreases a lender’s risk, often resulting in a lower rate for you.

Property Type
Lender risk plays a big part in your rate. For instance, a loan for a single-family home is less risky than one for a multi-family home because there are fewer variables. The less risk, the better the rate.

Occupancy
If you plan on living in your new home, you will probably get a better rate versus a loan on a rental unit, which carries more risk for the lender.

Loan Amount
The amount of money you borrow could affect the interest rate you get.

In the very beginning of the month of August the mortgage interest rates remained quite stable. Except a few mortgage program interest rates most of then remained unchanged to what it was in the last week of July. Interest rates of mortgage programs like 10-Year Treasury and 30-Year Treasury were down by 0.06% and 0.04% respectively. And the interest rate of programs like USD LIBOR 6-month and USD LIBOR 1 Year were up by very nominal 0.015% and 0.022%. Other than these, the interest rates of 30 year fixed average, 15 year fixed average, 51 ARM average, 31 ARM average and some other programs remained unchanged.

On the third day of the month most of the mortgage interest rates fell down by units in decimal due to change in market conditions. But the interest of short-term mortgage loans like USD LIBOR 6-month and 1-year were raised up to 5.318% and 5.230%.

During the first 15 days of the month the mortgage interest rate fluctuated a lot. Though the average fluctuation rate was very low but it kept on fluctuating up and down. On most of the occasions the short-term loan interests got affected and kept changing everyday.

Analysts believe that the decline in the mortgage industry is due to the higher unemployment in the recent times. Some believe that the recent drastic drop in mortgage market is due to the tighter lending standards and cooling home prices. This fall in the mortgage interest rate has in fact started to affect the sub-prime lending too.

Due to the fall in mortgage interest rates the U.S. mortgage applications rose for the second straight week. Experts believe that the recent disturbance in the mortgage market is the reason behind the rising applications. The housing sector and the homebuilders market are down and so are the financial companies including mortgage companies. Last week, the fall in the mortgage market spread to the financial markets with a rapid speed and provoked the fear that tighter credit will have a bigger impact on consumers, markets and the economy.

It has been forecasted that the interest rates for the 80% of homeowners and buyers that qualify for A-paper mortgages will probably remain stable or slightly increase in the near future. Those who are with sub-prime credit or don’t have proper documents to prove income, may face difficulty in getting the loans or they might be charged with higher interest rates or huge down payment.

When applying for a home loan, there are a number of factors you have to take into account. Loan to value is one of the key issues that will determine whether you get that loan.

Mortgage Factors: Loan to Value

When considering an application for a mortgage, lenders look at a number of factors. Regardless of the type of loan, they always look at loan to value ratios. The loan to value ration is simply a calculation that tells the lender and you the value of the property in question versus the amount of the loan. The ratio is determined by dividing the appraised value of the home by the amount sought for the home loan. For instance, assume a home is appraised at 200,000. If you apply for a 160,000 home loan, the loan to value is 80 percent.

In evaluating any loan of any type, lenders try to evaluate the risk factor. By risk, they are trying to ascertain the chance you will default on the loan and leave them holding the property. The loan to value ration is one of the factors used to determine risk. Simply put, the larger the loan to value ratio, the more risk the lender has of getting stuck with the property. The higher the risk level, the more picky the lender is going to be about other factors in the application process such as income, credit and so on.

The magic number with loan to value rations is 80 percent. If you can come up with sufficient cash to put down 20 percent on a property, the lender will consider the loan to be less risky. Put in practical terms, the lender knows you arent about to walk away from your large cash down payment if you can help it. Thus, there is less risk in granting the loan.

If you are applying for a mortgage with a high loan to value ratio, you need to make sure you have excellent credit and a strong history of employment. An application with 90 or 100 percent loan to value is going to make a lender risk sensitive, so you can expect it to be much harder to get the loan.

In the current home financing market, the loan to value ratio is not as critical as it used to be. There are now a bevy of lenders that specialize in particular types of loans, particularly high loan to value ratio mortgages. If you are looking at a high loan to value ratio, a mortgage broker is your best option to finding the best deal.