A loan covering more than 100% of the market value of the home. Typical coverage is 125% of value. Such loans are used exclusively as a Refinancing tool, which essentially makes them a Home Equity Loan. Such loans are inherently high-risk and generally are reserved for the lowest-risk borrowers. Lenders also are gambling on the borrower's aversion to foreclosure, since a portion of the loan is unsecured.
Example: When the Dawsons refinanced their old $90,000 mortgage, they were able to get a high loan-to-value loan of $125,000, despite the fact that their home was worth only $100,000. They used the $35,000 cash proceeds of the transaction (minus transaction costs) to remodel and retire other existing debts.
