125% Loan
September 11, 2009 in Mortgages & Credit
A 125% Loan is a loan, usually a mortgage, with an initial loan amount equal
to 125% of the initial property value. In other words, a 125% loan has a loan-to-value ratio (LTV ratio) of 125%. A primary measure of a loan’s risk to a lender is the size of a loan relative to the value (LTV ratio) of the underlying property. A 125% loan is a relatively risky loan as compared to a loan with a LTV ratio of less than 100%, and therefore, according to the risk-based pricing method used by lenders, a loan with a LTV ratio of 125% will carry a higher interest rate than a loan with a LTV ratio of 100% or below.
