What Is CLTV in a Mortgage and How Is It Calculated?

Combined Loan-to-Value (CLTV) is a metric in mortgage lending, used to evaluate the total debt secured by a property relative to its market value. This calculation provides lenders with a comprehensive view of the financial risk associated with extending credit to a borrower. Understanding CLTV helps both lenders and homeowners assess the overall leverage on a property, influencing various mortgage-related decisions.

Understanding CLTV

The Combined Loan-to-Value (CLTV) ratio represents the total percentage of a homeowner’s property that has liens or debt obligations, compared to the property’s current value. This ratio is distinct from the standard Loan-to-Value (LTV) ratio. While LTV only considers the primary mortgage balance against the property’s value, CLTV incorporates all loans secured by the property. These secured loans can include a first mortgage, any second mortgages, home equity loans, and Home Equity Lines of Credit (HELOCs).

Lenders utilize CLTV to assess the total financial exposure and risk associated with all outstanding loans tied to a single property. A lower CLTV ratio generally indicates less risk for the lender, as it implies a greater portion of the property’s value is not encumbered by debt. This comprehensive view helps in determining the borrower’s overall financial commitment and the safety margin available to lenders in case of default.

How CLTV is Calculated

Calculating CLTV uses a straightforward formula considering all outstanding debt against a property and its appraised value. The formula is: CLTV = (Total Secured Loan Value / Appraised Property Value) 100%. The “Total Secured Loan Value” encompasses the original loan amount of the primary mortgage, the drawn portion or outstanding balance of any HELOCs, and the unpaid principal balance of all closed-end subordinate financing. The “Appraised Property Value” is the home’s current market value, determined by a professional appraisal.

To perform this calculation, a homeowner first sums the current balances of all loans secured by the property. This includes the remaining balance on the first mortgage and any secondary loans, such as home equity loans or HELOCs. Next, the property’s current appraised value is obtained. Finally, the total sum of all loan balances is divided by the appraised property value, and this result is multiplied by 100 to express it as a percentage.

For example, if a property is valued at $200,000, with a primary mortgage of $100,000 and a second mortgage of $50,000, the CLTV would be (($100,000 + $50,000) / $200,000) = 75%. Another scenario might involve a home valued at $500,000 with a $300,000 first mortgage and a $100,000 second mortgage, resulting in an 80% CLTV (($300,000 + $100,000) / $500,000). Borrowers can typically find their loan balances on recent statements and obtain property value through a current appraisal.

CLTV and Mortgage Decisions

Lenders utilize the calculated CLTV ratio when evaluating mortgage applications, particularly for home equity loans, HELOCs, or refinancing existing mortgages with multiple liens. This ratio helps lenders gauge the overall risk of a loan, as a higher CLTV indicates a greater debt burden relative to the property’s value.

Most lenders establish specific CLTV thresholds or limits that borrowers must meet for loan approval. While many lenders generally prefer a CLTV ratio of 80% or less, some may allow ratios up to 85% or even higher, depending on the loan product and the borrower’s credit profile. Exceeding these established limits can impact a borrower’s eligibility or the terms of a potential loan, potentially leading to a denial or approval with a higher interest rate.

For instance, certain specialized programs may permit CLTVs as high as 105% under specific conditions, often involving specific types of subordinate liens. CLTV is one of several factors considered in a comprehensive risk assessment, alongside an applicant’s credit score, debt-to-income ratio, and other financial indicators.