What does it mean to have a high LTV ratio?

A high loan-to-value (LTV) ratio suggests a higher loan amount compared to the appraised value of the property. The LTV ratio is calculated by dividing the loan amount by the property's appraised value. For example, if a property is valued at $200,000 and a borrower is seeking a loan of $180,000, the LTV ratio would be 90%, indicating that the loan amount is 90% of the property's value.

When the LTV ratio is high, it typically means that the borrower is financing a larger portion of the property’s value through debt. This often occurs when a borrower makes a smaller down payment. Lenders view high LTV ratios as carrying more risk since there is less equity in the property, which may result in higher interest rates or additional requirements to mitigate that risk. Understanding this concept is crucial as it affects both the terms of the loan and the financial stability of the borrower.

The other options do not accurately reflect the implications of a high LTV ratio. For instance, it does not guarantee lower monthly payments or loan approval and actually indicates higher risk to lenders.