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

The combined loan-to-value (CLTV) ratio refers to the proportion of loans that a borrower secure on a property in relation to the value of the property. The CLTV ratio is often used in the context of secured loans to describe the ratio or proportion of a homeowners debt in ratio to the value of the property used in securing the loan. The CLTV ratio helps lenders determine the overall mortgage debt of a borrower against the fair market value of the property being used as collateral. This expresses the default risk of a homeowner or otherwise.

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How is a Combined Loan-to-Value (CLTV) Ratio Used?

Typically, the loan-to-value ratio is calculated on each secured loan, it is the ratio between the primary loan and the value of a property. The term Combined in this definition reveals an aggregate ratio of all secured loans on a particular in relation to the value of the property. The CLTV ratio is important to lenders as it helps then determine the category of borrowers to extend loans to. Usually, borrowers with a CLTV ratio of 80% and above are safe to be offered loans, they have good credit ratings.

How to Calculate the Combined Loan-to-Value (CLTV) Ratio

To calculate the Combined Loan-to-Value (CLTV) ratio, there are some important factors that must be considered. First, it is important to know that the CLTV ratio is the aggregate ratio of all secured loans on a property in relation to the market value of the property. Hence, to calculate the ratio, the aggregate principal balances of all the secured loans must be divided by the fair market value of the underlying property. Also, in calculating this ratio, it is important to identify the principal loan amount of the first mortgage and other mortgages so as to draw an outstanding principal balance of HELOC (Home equity lone if credit) for the secured loans.

What Does the Combined Loan-to-Value (CLTV) Ratio Tell You?

Generally, the combined loan to value (CLTV) ratio tells a lender the total value of the property of a borrower that is tied to debt obligations or encumbered. Lenders assess this ratio before extending a loan credit to a borrower, with this ratio, the creditworthiness of a borrower is identified. Aside from the combined loan to value ratio, there are other ratios lenders use in determining the default risk of a borrower and whether it is safe to extend a loan to such borrower.

The Difference Between Loan-to-Value and Combined Loan-to-Value

A loan to value (LTV) ratio is different from a combined loan to value ratio (CLTV) ratio. While the LTV ratio only accounts for the primary mortgage with respect to the fair market value of the property of a homeowner, the CLTV ratio is an aggregate of all the secured loans on a property in relation to the value of the property. While many lenders use both the LTV and CLTV ratios, some use only of the ratios. Borrowers that have the maximum of 80% LTV ratio can obtain a mortgage under the Fannie Mae and Freddie Mac. Different lenders have varying LTV and CLTV requirements that borrowers must meet before they can extend loans to them.