When processing your home loan application, banks will usually consider two important factors:
The Loan-To-Value Ratio
And The Debt-To-Income Ratio
These two calculations are used by all SA home loan providers and are a measure of the amount of risk the bank is taking by approving the mortgage.
The loan-to-value ratio (LTV) is the ratio between the size of your mortgage and the assessed value of your property. Before any home loan is granted the bank will send a valuer to your home to assess its value.
Your loan amount is then divided by the property value and multiplied by 100, giving the LTV percentage. The smaller your loan in comparison to the value the easier it is going to be to get a home loan.
The LTV represents the risk the Bank is taking by granting the home loan, a high LTV means higher risk and therefore banks are more likely to offer the best interest rates for home loans with a low LTV.
Your Debt-to-Income ratio (DTI) is used to measure if youâ€™re able to pay off your mortgage. Your DTI is another key factor affecting the interest rate on your new home loan, a high DTI will most often result in a higher interest rate.
When applying for your home loan, it is best to consider these two key factors as they greatly affect the interest rate charged on your home loan.
If you need to speak to a consultant, complete this FORM online and a home loan specialist will contact your with further assistance.