What is the impact of having a loan-to-value ratio greater than 80%?

Having a loan-to-value ratio (LTV) greater than 80% typically signifies that the borrower is financing a larger portion of the property's value through a mortgage. This higher LTV ratio is seen as a higher risk by lenders because it indicates that the borrower has less equity in the property. As a result, lenders often respond by increasing interest rates to compensate for this increased risk.

When the LTV exceeds 80%, lenders may require private mortgage insurance (PMI) to protect themselves against potential losses if the borrower defaults on the loan. This further reinforces the idea that borrowers with higher LTV ratios face higher costs associated with their loans. Consequently, the implications of a higher LTV ratio often include not only elevated interest rates but also increased monthly payments due to added insurance costs.

Therefore, the option that states a higher interest rate accurately reflects the mortgage market's adjustments to perceived risk levels associated with LTV ratios greater than 80%. This understanding underscores the importance of borrowers striving to maintain a lower LTV to secure more favorable loan terms.