A lower down payment on a mortgage means a:

A lower down payment on a mortgage typically results in a higher loan-to-value ratio. The loan-to-value ratio (LTV) is calculated by dividing the loan amount by the appraised value of the property. When a buyer makes a lower down payment, the loan amount increases relative to the property value, thus raising the LTV.

For instance, if a property is valued at $200,000 and the buyer puts down 5%, the loan amount would be $190,000, leading to an LTV of 95%. In contrast, if the down payment were 20%, the loan amount would be $160,000, resulting in an LTV of 80%. LTV is a crucial metric for lenders as it helps assess risk; a higher LTV generally implies greater risk, often prompting lenders to require private mortgage insurance (PMI) for loans with higher ratios.

Understanding how down payment amounts affect the loan-to-value ratio is important for buyers to recognize the implications on their mortgage agreements and overall financial commitments.