Certified Apartment Portfolio Supervisor (CAPS) Practice Exam - Module 2

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Prepare for your Certified Apartment Portfolio Supervisor (CAPS) exam with our comprehensive quiz, designed to test your knowledge and readiness. Get insights and practice questions to enhance your confidence for the exam!

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What does a low loan-to-value (LTV) ratio indicate to a lender?

The property is overvalued
The property is high-risk
The property is low-risk
The borrower has poor credit history

The correct answer is: The property is low-risk

A low loan-to-value (LTV) ratio indicates to a lender that the property is considered low-risk. This is because a low LTV means that the borrower is financing a smaller portion of the property's value with debt, having a significant equity stake in the property. The greater the equity, the more likely the borrower is to continue making payments on the loan, as they have more to lose in case of default. Additionally, a lower LTV typically leads to lower monthly mortgage payments, making it easier for the borrower to manage their financial obligations. In a low LTV scenario, the lender is also less exposed to the risk of loss if the borrower defaults and the property needs to be sold. If property values fluctuate, having a low LTV offers a cushion against the risk of the property being underwater (where the mortgage balance exceeds the property's market value). Thus, a low LTV ratio is a positive indicator of the borrower's financial stability and the overall health of the loan from the lender's perspective.