100% Mortgages

Limited savings don't have to mean you can't invest in property, a 100 percent mortgage offsets the entire mortgage amount against your home allowing you to get your new home without a deposit.

More About 100 Percent Mortgages

Mortgages are assessed by risk to the lender, the larger the deposit the lower the risk, so a mortgage with no deposit represents a massive risk. That said many lenders offer 100 percent mortgages due to the massive demand, however in order to compensate for the risk to the lender the interest rate will be higher than that of a lower LTV mortgage. 100% mortgages are popular as fixed rate offers because it's to manage a fixed repayment, especially with limited savings but variable rate mortgages such as tracker mortgages are not uncommon. Whilst a 100% mortgage may seem expensive it's worth baring in mind that after a couple of years it will be possible to remortgage and use the equity in you home as security to benefit from far better interest rates.

Why Are 100% Mortgages More Expensive?

Large deposits protect lenders in the event of a repossession, in this situation the property will need to be sold quickly, usuallly for less than the properties market value. If the lender is forced to repossess the property in the early stages of the mortgage chances are the property would not have increased in value, potentially losing the lender thousands.

What To Look Out For

As a result of this increased risk, 100% mortgages carry higher interest rates than traditional mortgages. This means that you will end up paying more for your home in the long run. The loan may be structured so that you are tied in to the loan agreement. The lender may offer you a 100% loan, but in return you sign a loan agreement that carries high fees if you should choose to change lenders. Also, 100% mortgages almost always require the borrower to pay a mortgage indemnity guarantee policy, which adds even more to the cost of the loan.

Of course, you are also at risk if property values should drop. This will create a situation called negative equity. This means that you owe more on the property than it is actually worth. Negative equity is a very dangerous financial situation and should be avoided.

Applying for a 100% mortgage is not necessarily a bad idea, provided you know and accept the risks. Many lenders have reasonable offers for this type of mortgage. Take the time to shop around for the best offering, and choose a 100% mortgage only if you have no money to use as a down payment.