Hello, Shoaib-ga,
First let's look at the definition of "loan-to-value" from Champion
Mortgage:
"The total amount of the loans (mortgages) divided by
the market value (i.e., the appraised value)."
Taken from the Champion Mortgage Glossary at
http://www.championmortgage.com/marketing/mortgage101/glossary.asp#L
And another definition:
"Loan-to-Value ratio (LTV)
"The percentage of the value of the property for which a mortgage
is required. This ratio is important in determining whether or
not default insurance is required, and if so, what the cost of
that insurance will be (see "Mortgage Insurance") For example, if
the property value is $200,000, the down payment available is
$20,000 and the required mortgage is $180,000. The LTV is
$180,000 / $200,000 or 90%"
Taken from themortgage.com's Glossary of Terms at
http://www.themortgage.com/71.html
From the above definitions, we can see that when someone claims
"greater than 100% loan-to-value real estate loans," they are
claiming to loan you more money than your real estate is worth.
For example, if your real estate was appraised at $100,000 and
someone is going to provide you with a 120% LTV ratio, then they
will loan you a total of $120,000.
Additional Links:
Loan-to-value is explained in a little more detail here:
http://www.4-investing.com/Topics.html#Loan-to-Value Ratio
Search Strategy:
Google terms: "loan-to-value" OR "loan to value" ratio explained
://www.google.com/search?hl=en&lr=&ie=ISO-8859-1&q=%22loan-to-value%22+OR+%22loan+to+value%22+ratio+explained&btnG=Google+Search
Google terms: greater than 100% loan-to-value real estate investment
://www.google.com/search?q=greater+than+100%25+loan-to-value+real+estate+investment&hl=en&lr=&ie=UTF-8&start=20&sa=N
I hope this helps you, and if you need clarification, please feel
free to ask.
Regards,
bikerman-ga |
Clarification of Answer by
bikerman-ga
on
16 Dec 2002 04:36 PST
Hi, Shoaib-ga, and thanks for giving me the opportunity to clarify
my answer.
It appears that financial companies offer greater than 100% LTV
ratios in order to make a profit from the exhorbitant interest
rates they charge on the loan. This type of loan is typically
considered to be "predatory lending" because the financial
institute knows that the borrower needs more money than their real
estate is worth, and takes advantage of that fact by charging them
rediculously high interests rates. Their hope is to make a profit
on the interest even if the borrower defaults on the loan.
ACORN (Association of Community Organizations for Reform Now) is
an organization committed to the interests of low and
moderate-income families. Here is the URL to their homepage:
http://www.acorn.org/
Here is a quote dealing with this type of loan, from the ACORN
website:
"Loans for Over 100% Loan to Value
"Some lenders regularly make loans for considerably more than a
borrowers home is worth with the specific intents of maximizing
their debt and thus their payments, and trapping them as customers
for an extended period. Even borrowers with excellent credit have
no way to escape from a high rate loan if they are upside down and
owe more than their home is worth. Borrowers are frequently
unaware that they owe much more than their homes are worth, and
even more frequently unaware of the consequences."
"Predatory Lending"
http://www.acorn.org/acorn10/predatorylending/practices.htm
You may also be interested in some of the other information on
that page.
Although ACORN is a US organization, I don't think the issue is
any different for international loans. Regardless of national
origin, any financial institute's bottom line is to make a profit,
and high interest rates are the way it is done with this type of
loan.
Google Search:
international "real estate" loans greater value "low income" "high
interest"
://www.google.com/search?hl=en&lr=&ie=ISO-8859-1&q=international+%22real+estate%22+loans+greater+value+%22low+income%22+%22high+interest%22&btnG=Google+Search
I hope this has sufficiently clarified my answer.
Best regards,
bikerman-ga
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