An argument needs settling.

Jan 17, 2004 1 Replies

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mark 22 years ago

Over far too much wine; I and a friend enjoyed a heated discussion about borrowing money.

He maintains that you can fairly easily borrow the value of your home/other property regardless of your income. He thinks that the lender will be happy as they can recoup their losses by selling the property.

I disagree; I think that you cannot borrow beyond what you can afford to service and that this depends on you income.

We both own properties worth far more than we could afford to buy (if I am right). I proposed a situation whereby an out of work person might be left a house worth 600k and decided to try and borrow 400k against the house.

Who is right and why?

TIA :)

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Tim 22 years ago

"mark" wrote

You will likely have problems borrowing the full 100% of value, but a 75% or even 80% of value loan should be possible. You would need to look for a (true) "non-status" mortgage loan (not a self-certify, which would require confirming your income, just not proving it).

The out-of-work person should be able to obtain the 400K loan against a house valued (for mortgage purposes) at 600K - being 66.7% LTV ("loan-to-value"). But note:

(1) the interest rate charged will be higher than for standard mortgages; and (2) (s)he would need to keep some of the 400K back (not spend it) in order to service the loan over the period before they sold the house to repay it -- which they may eventually need to do, if they are still out-of-work and are not able to regularly re-mortgage enough to continue payments ...

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