PSI New Jersey Real Estate State Practice Exam

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Prepare for the New Jersey Real Estate Exam. Study with flashcards and multiple-choice questions, each with hints and explanations. Ace your exam confidently!

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What does a low loan-to-value ratio generally indicate?

Higher risk
Higher equity in the property
Lower interest rates
Greater financing options

The correct answer is: Higher equity in the property

A low loan-to-value (LTV) ratio typically indicates higher equity in the property. This means that the homeowner has invested a significant amount of their own funds into the property compared to the amount borrowed. For example, if a property is worth $200,000 and the mortgage amount is $100,000, the LTV ratio is 50%, indicating that the homeowner has 50% equity. Higher equity is beneficial as it reduces the risk to lenders; borrowers with more equity are often viewed as less likely to default on their loans. This can lead to better terms for the borrower, such as lower interest rates or more favorable financing options, but the primary takeaway is that a low LTV ratio reflects a substantial investment and equity stake in the property itself.