What does it typically mean if a borrower has a high loan-to-value (LTV) ratio?

A high loan-to-value (LTV) ratio generally indicates that the borrower has financed a large portion of the property's value with debt. This situation can often lead to the borrower being viewed as a higher credit risk. Lenders assess the LTV ratio as an important factor because a high ratio suggests that the borrower has invested less of their own money (equity) into the property relative to the amount they have borrowed.

When the LTV is high, it can mean that the borrower does not have a significant cushion of equity to protect against declines in property value. If property values drop, borrowers with high LTV ratios may find themselves owing more than their property is worth, which can lead to increased chances of default. Therefore, lenders may require higher interest rates or mortgage insurance on loans with high LTV ratios to mitigate the perceived risk of lending to such borrowers.