We are independent & ad-supported. We may earn a commission for purchases made through our links.
Advertiser Disclosure
Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.
How We Make Money
We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently of our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.

What Is a High Ratio Loan?

Esther Ejim
Updated May 17, 2024
Our promise to you
WiseGeek is dedicated to creating trustworthy, high-quality content that always prioritizes transparency, integrity, and inclusivity above all else. Our ensure that our content creation and review process includes rigorous fact-checking, evidence-based, and continual updates to ensure accuracy and reliability.

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

Editorial Standards

At WiseGeek, we are committed to creating content that you can trust. Our editorial process is designed to ensure that every piece of content we publish is accurate, reliable, and informative.

Our team of experienced writers and editors follows a strict set of guidelines to ensure the highest quality content. We conduct thorough research, fact-check all information, and rely on credible sources to back up our claims. Our content is reviewed by subject-matter experts to ensure accuracy and clarity.

We believe in transparency and maintain editorial independence from our advertisers. Our team does not receive direct compensation from advertisers, allowing us to create unbiased content that prioritizes your interests.

A high ratio loan is used to describe a situation where the calculation of the down payment required to access a loan is significantly lower than is the norm for such a loan. Loans like this are more common in real estate transactions where a bank accepts a much lower than normal down payment from the person borrowing money for the loan. This type of loan is very risky, because it exponentially increases the risk that the bank has to assume by granting that particular loan.

The risk involved in the granting of a high ratio loan makes it necessary for the financial institutions granting the loan to also require the borrower to obtain insurance as a form of protection for the bank. Insurance also serves as a means by which the financial institution will spread the risk involved in granting the loan to the borrower, since the insurance company takes some of the burden associated with a potential default off the financial institution. Even though a high ratio loan may sometimes be granted to certain customers, the high risk associated with it means that the financial institution must be extremely selective when considering those who will be given such a privilege. Part of their considerations for granting a high risk loan is the creditworthiness of the borrower, which may be determined by a very high credit score rating.

As such, even though a borrower may not have enough money to put up as an adequate down payment, he or she may still qualify to be granted the loan if the borrower has a very good credit score. Some banks may also require a borrower to further obtain insurance, depending on their policy. Another way in which financial institutions justify the granting of a high ratio loan, or compensate for the granting of the same, is through the charge of a much higher interest rate in comparison to loans that have a much lower ratio.

One of the risks involved with the granting of a high ratio loan includes the possibility that the borrowers might not fulfill their own end of the bargain. This is in addition to the fact that a dip in the housing market could have a potentially disastrous consequence for the parties in a loan. Also, the burden of the higher interest rate placed on the borrower might lead to a default on repayment.

WiseGeek is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Link to Sources
Esther Ejim
By Esther Ejim
Esther Ejim, a visionary leader and humanitarian, uses her writing to promote positive change. As the founder and executive director of a charitable organization, she actively encourages the well-being of vulnerable populations through her compelling storytelling. Esther's writing draws from her diverse leadership roles, business experiences, and educational background, helping her to create impactful content.
Discussion Comments
Esther Ejim
Esther Ejim
Esther Ejim, a visionary leader and humanitarian, uses her writing to promote positive change. As the founder and...
Learn more
WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.

WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.