 TITLE: Understanding Loan-to-Value Ratio (LTV) CONTENT: How Does Loan-to-Value Ratio Affect Interest Rates?\n---------------------------------------------------\nU.S. lenders typically follow a practice known as \"risk-based pricing,\" which involves setting higher interest rates on loans they determine to be relatively risky. This leads to borrowers with subpar credit being charged more than those with excellent credit, and it applies to LTV as well: Since a high LTV ratio means more risk to the lender, loans with high LTVs typically come with higher interest rates.\nHigher interest rates aren't the only way in which a high LTV can cost you.\nIf you're buying a house with a conventional loan—that is, a mortgage that's not backed by a federal program—an LTV ratio greater than 80% may mean you're required to buy private mortgage insurance (PMI), which covers the lender against loss if you fail to repay your loan. PMI typically costs between 0.5% to 1% of the loan amount every year, and must be paid until your LTV ratio drops to 78%. So, if your loan is $250,000, you can expect to pay between $104 and $208 extra every month until that happens. END