A higher loan-to-value ratio is generally associated with what effect on pricing?

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Multiple Choice

A higher loan-to-value ratio is generally associated with what effect on pricing?

Explanation:
Higher leverage from a larger loan relative to value means more risk for the lender. When the loan-to-value ratio is high, the borrower has less equity and the lender faces a bigger potential loss if property values fall or if there’s default. To compensate for that added risk, lenders raise the interest rate on the loan, increasing the cost of borrowing. So the pricing effect most typically observed with a higher LTV is higher rates. Lower LTV (more equity) generally allows for lower rates, while a higher rate is not tied to simply longer terms or no pricing impact.

Higher leverage from a larger loan relative to value means more risk for the lender. When the loan-to-value ratio is high, the borrower has less equity and the lender faces a bigger potential loss if property values fall or if there’s default. To compensate for that added risk, lenders raise the interest rate on the loan, increasing the cost of borrowing. So the pricing effect most typically observed with a higher LTV is higher rates. Lower LTV (more equity) generally allows for lower rates, while a higher rate is not tied to simply longer terms or no pricing impact.

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