90% loan-to-value (LTV) investment loans refer to loans where the borrower borrows up to 90% of the property’s value to purchase an investment property. These loans come with higher risks compared to lower LTV loans but may offer attractive returns. This article discusses key features and risks of 90 ltv investment loans.
Higher leverage increases potential returns
A 90% LTV investment loan means the borrower only needs a 10% deposit, allowing them to leverage their capital more and potentially earn higher returns. However, it also exposes them to larger losses if property values decline. Careful analysis of market trends is essential.
Higher interest rates and stricter lending criteria
Because of the higher risks to lenders, 90% LTV investment loans typically have higher interest rates compared to lower LTV loans. Lenders also have stricter borrower requirements regarding credit score, income, and existing assets.
Lower buffers against falling property values
With only 10% equity in the property, borrowers have less of a buffer if market values decline. This increases the risk of negative equity, which occurs when the loan balance exceeds the property’s value.
Potential cash flow issues with interest-only periods ending
Some 90% LTV investment loans offer interest-only periods, after which borrowers must make principal and interest repayments. Borrowers can face cash flow issues when these periods end if rental income does not sufficiently cover higher required payments.
In summary, 90% LTV investment loans allow borrowers to maximize leverage and potentially earn attractive returns from property investments. However, the higher risks mean careful analysis of the borrower’s financial position and market trends is essential.