Final answer:
The loan-to-value ratio (LTV) impacts interest rates and loan insurance. Higher LTVs result in higher interest rates and/or loan insurance due to increased risk for the lender.
Step-by-step explanation:
The loan-to-value ratio (LTV) is a measure of the riskiness of a loan and is calculated by dividing the amount of the loan by the appraised value of the property. A higher LTV indicates a higher risk for the lender.
When the LTV is high, meaning the borrower has a small down payment and a large loan amount relative to the property value, lenders perceive a greater risk since there is less equity in the property to cover potential losses. In this case, lenders may charge higher interest rates or require loan insurance to compensate for the increased risk.
On the other hand, a lower LTV indicates a lower risk for the lender as the borrower has a larger down payment and less borrowed. Lenders may offer lower interest rates or waive the requirement for loan insurance in these cases.