Introduction to Combined Loan to Value (CLTV)

When you're applying for a mortgage, lenders look closely at your financial risk. One key measure they use is the Combined Loan to Value, or CLTV. Understanding CLTV can help you know how much you can borrow and how lenders view your loan application.

In this article, we'll break down what CLTV means, how it differs from other loan metrics, and why it matters for your home financing journey.

What Does Combined Loan to Value Mean?

Combined Loan to Value (CLTV) is a ratio that compares the total amount of all loans secured by a property to the property's appraised value or purchase price, whichever is lower. It includes your primary mortgage plus any additional loans like a second mortgage or home equity line of credit (HELOC).

Simply put, CLTV shows the total debt against your home relative to its value. Lenders use this to assess overall risk before approving your loan.

How is CLTV Calculated?

To calculate CLTV, add up all outstanding loan balances secured by the property, then divide by the property's current appraised value or purchase price. Multiply by 100 to get a percentage.

• Formula:

  (Primary Loan + Secondary Loan) ÷ Property Value × 100

• Example: If your first mortgage is $150,000 and your second loan is $30,000, with a property value of $250,000, then CLTV = ($150,000 + $30,000) ÷ $250,000 × 100 = 72%

Why is CLTV Important for Borrowers?

CLTV helps lenders understand your total borrowing against your home. A lower CLTV means less risk for the lender, which can lead to better loan terms for you.

• It affects your eligibility for certain loan programs.

• Higher CLTV ratios may require private mortgage insurance (PMI).

• It influences interest rates and loan approval chances.

Knowing your CLTV can help you plan how much additional borrowing you can safely take on without jeopardizing your financial health.

CLTV vs. Loan to Value (LTV) and Other Ratios

It’s important to distinguish CLTV from other similar terms:

• Loan to Value (LTV):

  Only considers the primary mortgage loan amount divided by the property value.

• CLTV:

  Includes all loans secured by the property, such as second mortgages or HELOCs.

• HTV (Home Equity Loan to Value):

  Sometimes used to refer to the ratio of a home equity loan to the property value.

CLTV gives a fuller picture of your total debt secured by your home, which is why lenders often prefer it for risk assessment.

How CLTV Affects Your Mortgage and Refinancing Options

When you apply for a mortgage or refinance, lenders check your CLTV to decide loan terms.

• Lower CLTV:

  May qualify you for better interest rates and avoid PMI.

• High CLTV (above 80%):

  Could mean higher interest rates or the need for mortgage insurance.

• Very high CLTV (above 90%):

  Some lenders may deny the loan or require additional collateral.

Understanding your CLTV helps you negotiate better terms and plan your borrowing strategy.

Ways to Lower Your CLTV

If your CLTV is high, there are ways to reduce it and improve your loan prospects:

• Make a larger down payment:

  This reduces the loan amount relative to the property value.

• Pay down existing loans:

  Reducing your mortgage balances lowers total debt.

• Increase your property’s value:

  Home improvements or market appreciation can raise your property value, lowering CLTV.

Risks of High CLTV for Borrowers

A high CLTV means you owe a large portion of your home’s value, which can increase financial risk.

• Higher monthly payments and interest costs.

• Greater chance of owing more than your home is worth if prices drop.

• Potential difficulty refinancing or selling the property.

Being aware of these risks helps you manage your debt responsibly.

Conclusion

Combined Loan to Value is a crucial metric that shows your total borrowing against your home's value. It helps lenders assess risk and influences your loan terms.

By understanding CLTV, you can make smarter decisions about borrowing, refinancing, and managing your home loans. Keep your CLTV in check to secure better rates and protect your financial future.

What is Combined Loan to Value (CLTV)?

CLTV is the total amount of all loans secured by a property divided by the property's value, showing overall borrowing risk.

How does CLTV differ from Loan to Value (LTV)?

LTV only considers the primary mortgage, while CLTV includes all loans secured by the property, like second mortgages.

Why do lenders care about CLTV?

Lenders use CLTV to assess total risk and decide loan terms, interest rates, and insurance requirements.

Can I have a high CLTV and still get a mortgage?

Yes, but high CLTV may lead to higher rates, PMI, or loan denial depending on lender policies.

How can I lower my CLTV?

Make larger down payments, pay down existing loans, or increase your property’s value through improvements.