100 Percent Mortgage

100 percent mortgages are mortgage loans designed by the lenders for those homebuyers who do not have any monies for down payments. A few years ago, prices of real estate were rising and interest rates were slipping. In this scenario, many first time homebuyers were being left behind, as they couldn't generate the required amount of down payment as stipulated by most banks and lenders.


Banks stipulate that the homebuyer opting to take a mortgage loan should invest at least 5 to 20 percent of the property value. These percentages are fixed based on the property values, apart from earnings, and repayment capabilities of the borrower. Such margins in a way provide additional insurance to the lender against defaults in repayment, as the borrower would not want to risk foreclosures and lose the personal investment. A similar security, however, does not exist in respect of 100 percent mortgages, and therefore, the risk is completely on the lenders plate in a 100 percent mortgage.

To mitigate these risks, 100 percent mortgage lenders in the United Kingdom charge mortgage indemnity premium or Higher Lending Charges. Higher Lending Charges vary as per the ratio of loan to the value of the asset (LTV). Higher the ratio, higher is the HLC. However, HLC came down with falling interest rates, and lenders became aggressive in the market, going so far as giving 90 percent of the home value as mortgage loans without charging any HLC. This trend is again reversing as lending rates are once again climbing.

Most lenders are agreeable to add the HLC or mortgage indemnity premium to the principal instead of expecting the borrower to pay it upfront. Effectively, the repayment installment is arrived at considering a principal that is more than the value of the house! It may work as high as 103 percent of the home's value.

Interest rates on 100 percent mortgages, when granted, are also higher, as the borrower is perceived as somebody who has little choice but to buckle under such terms. The problem is there are not many lenders who offer 100 percent mortgages. In fact, 100 percent mortgages are temporarily off shelf at present because of acute credit crunch across the globe.

There may, however, be several mortgage products, and other loan combinations available in the market that may work out much cheaper, such as taking interest only mortgages along with some personal loan. So the prospective borrower should take pains to find out which combination of mortgages is ideal for him or her.

Even if such options were not available, the borrower would be better off by opting to borrow on fixed interest rates rather than adjustable rate mortgage loans, when and if 100 percent mortgages are availed. There are several websites these days that provide quotes and other details of mortgages in the market, including 100 percent mortgages. Obtaining information about mortgages was never this easy.


In the United States, the only mortgages that can be equivalent to the United Kingdom's 100 percent mortgages are the ones that are extended to veterans. There are, of course, Fannie Mae, and Freddie Mac home loans for borrowers who cannot raise the required down payment.

These are not exactly 100 percent mortgages, as the borrower may have to bring in 3 percent from other sources such as gifts from friends, savings, etc. Such loans are generally given only to the first time homebuyer. Here too, the borrower is required to provide required insurances. The lenders registered with these two bodies, however, assist the borrower to get as much help as possible.