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Qualifying for the 85 Mortgage

80% to 85% mortgages do not mean the interest rate on these mortgages but the percentage of the total value of the property that can be financed through mortgage loans. In other words, out of the total property cost, the borrower has to pay 10 to 15% and the rest can be loaned through a bank.

Mortgages are not only used to purchase new home loans but also refinance existing ones. In some cases these re-mortgages can be profitable as they may help clear the existing loan plus there may be some amount in hand. In order to do so, the borrower should have minimum 10% equity.

The continuous economic downturn post 2008 credit debacle meant the availability of high LTV mortgage loans has significantly reduced. Prior to 2008, there were hundreds of options offering LTV of 80% and above. Some even offered 100%LTV which meant zero ‘down payment’ is required.

Lately, the 80-85% mortgages have started to make a comeback. These are signs that world economy is slowly getting on the path to recovery. Although the eligibility criteria are still strict, these mortgages can still be made available for borrowers with good credit score.

Risks and benefits of 80-85% Mortgages
The biggest benefit of 80-85% mortgages is that it covers a substantial percentage of cost of the property. First time home buyers generally do not have sufficient savings to pay the initial down payment. With 80-85% mortgages, they only have to pay around 15% of the total property cost.

Existing borrowers who are looking to re-mortgage can get 80% of the house value which means they can clear the existing loan and still have some money in hand. The drawback with any mortgage is that it could result in negative equity. If the value of your property goes below what you owe, you will find it difficult or re-mortgage or sell the property later and still be liable to pay the due amount. This is negative equity.

As with other financial matters a higher LTV means higher risk. Market fluctuations can cause real problems later. The more principle is paid the lesser the risk.

The fees and charges for high LTV mortgages could be high but the benefits they provide in terms of improvement in quality of life can outweigh the drawbacks. No one knows your abilities and expectations better than you. Talk to your lender to see what works best for you. An 80-85% mortgage can be the right choice for you.