Combined Loan-to-Value (CLTV) Ratio: Definition, Calculation, & Example

Written by Elijah BishopUpdated: 28th Dec 2021
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When looking to buy a home, one factor that decides the loan amount and loan terms you receive is the loan-to-value ratio or LTV ratio.

The loan-to-value ratio, which is a financial ratio, helps the best mortgage lenders compare the loan amount to the value of the asset to be purchased using the loan.

But what happens when there are several mortgage loans tied to a single property? Lending professionals will use a combined loan-to-value or CLTV ratio to evaluate the risks of offering a loan to a borrower.

In this article, we’ll reveal the meaning of combined loan-to-value ratio, how it is calculated, and why mortgage lenders make use of CLTV.

What Is Combined Loan-to-Value (CLTV) Ratio?

CLTV stands for cumulative or combined loan to value ratio. Online mortgage lenders use this ratio to determine the combined value of all debt secured by a particular property to the total value of that property.

Like the Loan-to-Value Ratio, lenders use the CLTV ratio to determine a prospective borrower’s risk of default when more than one loan is used.

Typically, lenders are willing to lend to borrowers with high credit ratings at CLTV ratios of 80% and above. While mortgage lenders use both the LTV and CLTVto determine whether a borrower qualifies for a mortgage, they differ in the number of loans secured by a specific property.

LTVs usually include only the primary mortgage in its calculation, while CLTV comprises all the various mortgages.

>> More: Differences Between LTV and CLTV

How Is CLTV Calculated?

Calculating your combined loan-to-value ratio is straightforward. When calculating your CLTV ratio, you should divide the aggregate principal balances of all your loans by the property’s fair market value securing the loans.

To calculate your CLTV ratio, you must take the following factors into considerations.

  • The first mortgage’s original loan amount.
  • The remaining principal balance of a home equity line of credit
  • Unpaid principal balance of all closed-end subordinate financing, such as a second or third mortgage

Whether you’re calculating your CLTV for the first time or the tenth time, the following formula can help you calculate your CLTV ratio before reaching out to a lender. Here is the CLTV Formula:

CLTV Formula

Combined Loan-to-Value (CLTV) Example

The first step to determining your combined loan-to-value ratio is to know the appraised value of your home.

Let’s assume that your house currently appraises for $250,000. You have a loan balance of $150,000, and you want to take out a $50,000 home equity loan. Here is how the combined loan-to-value ratio would be calculated:

CLTV = $150,000 + $50,000, divided by $250,000, which equals .8, or 80 percent.

Why Do Mortgage Lenders Use CLTV?

Before the housing crash of 2007, most mortgage lenders paid little to no attention to the combined loan-to-value ratio when underwriting mortgages for potential home buyers.

Nowadays, it is common for mortgage lenders to employ a borrower’s CLTV ratio, credit score, and debt-to-income ratio when deciding whether or not a borrower qualifies for a mortgage.

Generally, lenders employ CLTV ratios to determine borrowers’ creditworthiness, equity, and ownership, in the secured home.

More importantly, mortgage lenders use CLTV to evaluate situations where an applicant has more than one mortgage tied to their property.

Since LTV only describes your first mortgage, lenders need CLTV to calculate the risk for a borrower with multiple liens on their home.

Bottom Line: Combined Loan-to-Value Ratio

CLTV is a combination of all mortgages linked to a specific property compared to the property’s appraised value.

Unlike LTV, which is just for the initial or primary mortgage, the CLTV focuses on borrowers with multiple mortgage loans. More importantly, mortgage lenders look at your CLTV ratio to identify if you can afford to purchase a home and repay the mortgage.

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Elijah Bishop
Elijah Bishop

Elijah A. Bishop is a Senior Personal Finance Writer who has been writing about real estate and mortgages for years. He has a Bachelors of Arts Degree in Creative writing from Georgia State University and has also attended the Climer School of Real Estate. He also holds a realtor license and has been in and out of the US mortgage industry as a loan officer. Bringing over 15 years of experience, Elijah produces content that analyzes ethnicities, race, and financial well-being. His areas of expertise are mortgages, real estate, and personal loans.