What is an Appraisal?
An appraisal is an opinion of the value of the property
made by a qualified person on a specific date
It's primary purpose is to form the basis of the
Loan-to-Value ratio (LTV).
The Loan-to-value ratio
The Loan-to-value ratio is a key factor in the
determination of the interest rate for a loan, calculated as follows:
| Loan-to-value ratio
= |
amount of the loan |
|
| appraised value of the property |
|
|
| $250,000 |
= LTV of 63% |
|
| $399,000 |
Often lenders will have specific
criteria associated with the loan to value ratio. For example; certain
loans may not be available in situations where the the LTV is greater
than 70%.
Many lenders do not make loans where the
LTV is greater than 80%, from the lender's perspective the lower the LTV
the better since that means less risk for the lender.
For you, a lower LTV means a lower
interest rate.
|
