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>> 90% Mortgages Defined
90% Mortgages refer to mortgages that cover up to 90% of the value of your property. You need to provide a deposit to cover 10% of the value of the property – and your mortgage lender provides the funds {your mortgage} to cover the other 90%.
90% Mortgages can otherwise be known as 90% LTV* Mortgages.
*LTV = Loan To Value and is the ratio between the mortgage amount and the value of the property. eg. a £50,000 mortgage on a £100,000 property – is a 50% LTV Mortgage.
>> The benefit of a 90% Mortgage
The benefit of a 90% mortgage is simply that it enables property buyers to get on the property ladder without having to find a larger deposit – although a 10% deposit may still be a stretch for most people. In other words, it reduces the size of the upfront costs required to purchase a property.
>> The negatives of 90% Mortgages
It may seem like a good idea to be able to minimise the amount of deposit you have to put down against a property – and obtain as high a ‘Loan To Value’ mortgage as possible. BUT a high Loan To Value mortgage leaves you with a higher risk of “negative equity” should there be a fall in the market value of your property.
“Equity” is the difference between the value of your property and the size of your mortgage (including any / all other debt you may have secured against your property). In other words, it is the amount of money you would be left with should you sell your property.
“Negative Equity” is where the value of your property is less than the size of your mortgage (including any / all other debt you may have secured against your property). i.e. you owe more on your mortgage and any other secured debts, than the value of your property.
The danger of a “Negative Equity” situation is that if you had to sell your property – the proceeds of the sale would not cover your mortgage debt. The higher the deposit you put down against the value of a property – the less likely it is that you will end up in a Negative Equity situation. The value of your property is more likely to cover your mortgage amount if you had to sell.
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To compare 90% mortgages – you can visit financial comparison site www.KnowYourMoney.co.uk.
