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Combined Loan-To-Value Ratio (CLTV Ratio)


The Combined Loan-to-Value Ratio (CLTV Ratio) is a financial term frequently used in lending that calculates the total borrowed amounts of all loans tied to a property, compared to the property’s appraised value. This includes any home equity loans or lines of credit in addition to the primary mortgage. The ratio is expressed as a percentage and is used to assess the risk of default of a potential borrower.


The phonetic pronunciation of “Combined Loan-To-Value Ratio (CLTV Ratio)” would be: kəmˈbīnd lōn-tə-vælˌyū rāˈSHēˌō (C-L-T-V RāˈSHēˌō)

Key Takeaways

<ol><li>The Combined Loan-To-Value (CLTV) ratio is a financial calculation used by lenders to determine the risks of loaning money to a borrower. It calculates the total amount of secured loans on a property compared to the property’s appraised value, providing an insight into the financial risk associated with lending.</li> <li>CLTV ratio not only takes into account the primary mortgage but also other loans secured by the property like home equity loans or second mortgages. If the CLTV ratio is high, it means that an individual has borrowed a significant amount against the property, indicating a higher risk for lenders. This ratio can influence the decision of lenders on the approval or the interest rate of the loan.</li> <li>The lower the CLTV ratio, the more favorable the terms of the loan can be for the borrower. This is because a lower CLTV ratio implies that the borrower has more equity in the property, which reduces the lender’s risk. Usually, a CLTV ratio of 80% or less is considered good and can help borrowers secure a lower interest rate.</li></ol>


The Combined Loan-To-Value Ratio (CLTV Ratio) is a crucial factor in the finance and business sector as it provides an assessment of the risk a lender may assume when issuing a new loan. The ratio is calculated by adding the total mortgage loans outstanding and dividing it by the current appraised value of the property. A higher CLTV ratio indicates a high-risk scenario where the borrower has less equity stake in the property, which could lead to the lender not recovering the full loan amount in the event of default, particularly if property values decrease. On the other hand, a lower CLTV ratio implies a lower risk for the lender. Hence, CLTV Ratio plays a crucial role in deciding the terms and conditions of a loan, enabling lenders to make more informed and less risky lending decisions.


The Combined Loan-To-Value Ratio (CLTV Ratio) serves a crucial purpose in the finance/business sector, primarily in the evaluation of risk associated with the backing of a loan. Lenders utilise the CLTV ratio to scrutinise the level of risk connected with providing a loan to a potential borrower, specifically in relation to mortgages. This ratio evaluates the total amount of loans secured by a property in relation to the property’s appraised value, informing the lender about the likelihood of the borrower defaulting on the loan. If the risk is high, lenders may either decline the loan or offer it at a higher interest rate.The CLTV ratio also aids in safeguarding the interests of the lender during scenarios of foreclosure. In case a borrower defaults on a mortgage or home equity loan, the lender can possess the property and intend to sell it so as to recover the loan amount. A lower CLTV ratio indicates that the property’s value is likely to cover all mortgages, even if the property value has decreased since the loans were made. Thus, a lower CLTV provides a safety cushion for the lenders, minimizing the potential loss. This is why lenders are more inclined to extend loans to borrowers with a lower CLTV ratio.


Example 1:Let’s suppose John has a mortgage on his home valued at $500,000 where he still owes $300,000. He decides to take a home equity line of credit (HELOC) for $50,000 for his home renovation project. Here, the CLTV would be calculated by adding his remaining mortgage balance with his HELOC, and then dividing by the home’s appraised value. The calculation would be: ($300,000 + $50,000) / $500,000 = 0.7 or 70%. In this example, John’s CLTV ratio is 70%.Example 2:For instance, Sarah purchased a property for $400,000. She took out two mortgages to afford it: a first mortgage for $320,000 and a second mortgage of $40,000. The CLTV ratio here will be: ($320,000 + $40,000) / $400,000 = 0.9 or 90%. The 90% CLTV tells the lender that Sarah has borrowed 90% of the property value.Example 3:Consider that David wishes to refinance his mortgage and take cash out. His home is worth $600,000, and he has a first mortgage of $350,000 and wants to take out a new loan of $50,000. His combined loan-to-value ratio (CLTV) would be: ($350,000 + $50,000) / $600,000 = 0.67, or 67%. This ratio is crucial for lenders to assess the risk – the higher the CLTV ratio, the more risk for the lender, as the borrower has less equity in the home.

Frequently Asked Questions(FAQ)

What is the Combined Loan-To-Value Ratio (CLTV Ratio)?

The Combined Loan-To-Value Ratio (CLTV Ratio) is a financial calculation that lenders use to determine the risk of issuing a mortgage or loan. It is calculated by taking the total amounts of all loans on a property and dividing it by the property’s appraised value.

How is the CLTV Ratio calculated?

The CLTV Ratio is calculated by dividing the total amount of all outstanding loans on a property (primary mortgage, second mortgage, home equity loans etc.) by the appraised value of the property.

Why is the CLTV Ratio important?

The CLTV Ratio provides lenders with insight into the potential risk of lending money to a borrower. The higher the CLTV Ratio, the greater the risk is to the lender as it indicates the borrower owes more than the property is worth.

Can CLTV Ratio affect my loan approval?

Yes, a high CLTV Ratio could impact your loan approval as lenders may perceive it as risky and may be less likely to approve the loan. A lower CLTV often increases the likelihood of loan approval.

Is it possible to have a CLTV higher than 100%?

Yes, it is possible if the total loan amount exceeds the value of the property. This typically occurs when the property value declines after the loans have been made.

How can I improve my CLTV Ratio?

There are several ways to improve your CLTV Ratio. This can include paying down your current loans, not taking on any additional debt against your property, or if your property’s value increases.

Are there any standard or average benchmarks for CTLV ratios that lenders look for?

While it can vary between lenders, many conventional lenders prefer a CLTV Ratio of 80% or less, as higher CLTV Ratios may lead to stricter underwriting standards or even loan denial.

What’s the difference between LTV and CLTV?

Loan-To-Value (LTV) considers only the primary mortgage in its calculation, whereas Combined Loan-To-Value (CLTV) considers all loans on the property.

Related Finance Terms

  • Collateral
  • Mortgage loan
  • Equity
  • Debt balance
  • Home Equity Line of Credit (HELOC)

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