what does a high ltv ratio loan tell you 
lenders and financial providers use the ltv ratio to measure the level of risk associated with making a mortgage loan if a borrower can t make a sizable downpayment and as a result the loan value approaches the value of the appraised value of the property it ll be considered a high ratio loan in other words as the loan value gets closer to 100 of the property value lenders might consider the loan too risky and deny the application the lender is at risk of borrower default particularly if the ltv is too high the bank might not be able to sell the property to cover the amount of the loan given to the defaulted borrower such a scenario can easily occur in an economic downturn when housing properties typically decrease in value if the loan given to the borrower exceeds the value of the property the loan is said to be underwater if the borrower defaults on the mortgage the bank will lose money when they go to sell the property for a lower value than the outstanding mortgage balance banks monitor ltv to prevent such a loss as a result most high ratio home loans require some form of insurance coverage in order to protect the lender the insurance is called private mortgage insurance pmi which the borrower would need to purchases separately to help protect the lender high ratio loans can have higher interest rates especially if borrowers have a low credit score your credit score is a numeric value that represents your ability to pay back debt and shows lenders how much of a risk you are of defaulting if your score is low your interest rate will likely be higher high ratio loan historyup until the 1920s people bought homes not by going to a bank but by saving their own money until they had enough for at least a piece of land or land with a house on it 1 then there emerged building and loan companies which would lend people the money to buy a house then have them pay it back in installments over many years even then loans typically were for half the value of the house or less by the end of the 1920s banks were making high ratio loans for up to 80 of the value of the house private mortgage insurance came into being to protect the banks but all that went by the wayside in the 1930s when jobless people stopped making payments and the banks and the pmi companies went under as well 2congress enacted the home owners loan corp which began guaranteeing mortgages and ratios sunk to 15 3 later through the federal housing administration fha and other agencies down payments fell to the low single digits and even 0 to encourage homeownership this system thrived until around 2007 2008 when the mortgage crisis of 2008 took hold the sharp increase in high risk mortgages that went into default beginning in 2007 contributed to the most severe recession in decades 2 the housing boom of the mid 2000s combined with low interest rates at the time prompted many lenders to offer home loans to individuals with poor credit after the real estate bubble burst many borrowers were unable to make payments on their subprime mortgages high ratio lendersthe federal housing administration offers programs through which borrowers can get fha loans with an ltv ratio of up to 96 5 in other words the program requires a 3 5 down payment however the program requires a minimum credit score to get approved for a high ratio loan there are other offers whereby a lower credit score is allowed with a 10 down payment also the fha loans require a mortgage insurance premium mip however you can refinance once the ltv falls below 80 and the loan is no longer considered a high ratio loan which would eliminate the insurance example of a high ratio loansay a borrower plans to buy a home that has a 100 000 appraised value the borrower can only afford to make a 10 000 down payment and the remaining 90 000 will have to be borrowed after approaching several lenders one finally agrees to underwrite a mortgage but with a higher than average interest rate the result is a loan to value ratio of 90 or 90 000 100 000 which would be considered a high ratio loan high ratio loans vs home equity loansa home equity loan is an installment loan or a second mortgage that allows homeowners to borrow against the equity value in their residence the loan is based on the difference between the homeowner s equity and the home s current market value a home equity loan is for those borrowers who already have a mortgage and have paid down some of the mortgage balance and whereby the property value exceeds the loan balance in other words a home equity loan allows homeowners to borrow based on the equity in the house a high ratio loan on the other hand can have a loan value that approaches 100 of the value of the property 