A 100% LTV home equity loan means that you have borrowed at least the full value of your home in a single loan or multiple loans. To well-qualified borrowers there can be advantages, but there also are significant risks. Loan to value is calculated by dividing the total value of all loans against your home by the current market value of your home. A $200,000 home with a $160,000 mortgage has an LTV of 80%.
Advantages to Qualified Borrowers
If you have a high credit score and no late mortgage payments in your credit history, you may qualify for a 100% LTV home equity loan. The primary advantage is you have not paid any down payment, so your out-of-pocket expense is lower. The assumption is you will be able to pay the resulting higher monthly mortgage payment.
Risks of High LTV Borrowing
A 100% LTV home equity loan will have a higher interest rate than conventional mortgage financing because there is no security in the form of a down payment. Additionally, fees and closing costs may put the total loan amount above 100% of your home’s value, and you can be required to buy private mortgage insurance. The amount borrowed above 100% is unsecured and cannot be deducted from your taxes.