Which statement about the relationship between loan-to-value and down payment is true?

Which statement about the relationship between loan-to-value and down payment is true?

• A. Higher LTV typically means a smaller down payment is required
• B. Higher LTV indicates a higher risk and often a higher down payment requirement
• C. Higher LTV has no impact on loan terms
• D. Higher LTV only affects appraisal value

Answer: (B)

Loan-to-value shows how much of the property's value is being financed. The down payment is what you put down upfront. They move in opposite directions: when you borrow a larger share of the property's value (a higher LTV), the amount you must bring as down payment is smaller. In percent terms, down payment percentage equals 100% minus the LTV percentage. A higher LTV signals more risk to the lender, which is why lenders commonly adjust loan terms (such as higher interest rates or requiring private mortgage insurance) to compensate for that risk. So the true statement is that higher LTV typically means a smaller down payment, with risk considerations affecting loan terms rather than increasing the required down payment.

Loan-to-value shows how much of the property's value is being financed. The down payment is what you put down upfront. They move in opposite directions: when you borrow a larger share of the property's value (a higher LTV), the amount you must bring as down payment is smaller. In percent terms, down payment percentage equals 100% minus the LTV percentage. A higher LTV signals more risk to the lender, which is why lenders commonly adjust loan terms (such as higher interest rates or requiring private mortgage insurance) to compensate for that risk. So the true statement is that higher LTV typically means a smaller down payment, with risk considerations affecting loan terms rather than increasing the required down payment.