Combined Loan-to-Value (CLTV) Ratio Definition and Formula

About Combined Loan-to-Value (CLTV) Ratio:

The combined loan-to-value (CLTV) ratio is the ratio of all secured loans on a property to the value of a property. Lenders use the CLTV ratio to determine a prospective borrower’s risk of default when more than one loan is used.

The CLTV differs from the simple loan-to-value (LTV) ratio in that the LTV only includes the first or primary mortgage in its calculation.1

KEY TAKEAWAYS:
  • CLTV ratio is the ratio of all loans on a property to the property’s value.
  • Lenders consider CLTV ratios in determining the risk of a borrower defaulting.
  • In general, most lenders are willing to lend to borrowers with strong credit scores and CLTV ratios of 80% and below.
  • The real estate bubble of 2008-2009 underscored the relevance of keeping an eye on CLTV ratios.

Formula and Calculation of the CLTV Ratio:

A CLTV ratio is calculated by dividing the amount of all loans on the property, including the one you are applying for, by its value. It is expressed as a percentage. In general, lenders are willing to lend at CLTV ratios of 80% and below to borrowers with high credit ratings. The following formula can be used to calculate the combined loan-to-value (CLTV) ratio:1

CLTV=VL1+VL2+⋯+VLnTotal Value of the Property where: VL=Value of loan

What does the CLTV Ratio show?

The combined loan-to-value (CLTV) ratio is a calculation used by mortgage and lending professionals to determine the total percentage of a homeowner’s property that has liens (debt obligations) compared to the value of the property. Lenders use the CLTV ratio along with a handful of other calculations, such as the debt-to-income ratio and the standard loan-to-value (LTV) ratio, to assess the risk of extending a loan to a borrower.

Many economists consider relaxed CLTV standards to be one of the factors that contributed to the foreclosure crisis that plagued the United States during the late 2000s. Beginning in the 1990s and especially during the early and mid-2000s, homebuyers frequently took out second mortgages at the time of purchase in lieu of making down payments. Lenders eager not to lose these customers’ business to competitors agreed to such terms despite the increased risk.

Example of a CLTV Ratio:

Let’s say you are purchasing a home for $200,000. To secure the property, you provided a down payment of $50,000 and received two mortgages: one for $100,000 (primary) and one for $50,000 (secondary). Your combined loan-to-value ratio (CLTV) is 75%: (($100,000 + $50,000) / $200,000).

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