{"id":4590,"date":"2022-08-01T19:30:09","date_gmt":"2022-08-01T19:30:09","guid":{"rendered":"https:\/\/loanbase.com\/uncategorized\/combined-loan-to-value-ratio\/"},"modified":"2023-11-16T19:53:13","modified_gmt":"2023-11-16T19:53:13","slug":"combined-loan-to-value-ratio","status":"publish","type":"post","link":"https:\/\/loanbase.com\/learn\/terms\/combined-loan-to-value-ratio\/","title":{"rendered":"Combined Loan-to-Value Ratio (CLTV) Definition"},"content":{"rendered":"

CLTV\u2014or combined loan-to-value ratio\u2014is the ratio of all loans secured by a property to the value of the property. The metric is used by lenders to determine the riskiness of a loan, as well as the likelihood that the loan will be repaid. A higher CLTV ratio indicates more risk to the lender, and a lower CLTV ratio indicates less risk.<\/span><\/p>\n


\nWhat Is CLTV?<\/span><\/h2>\n

CLTV allows lenders to analyze a loan based on all of the borrower\u2019s liabilities and debt obligations against a specific property\u2014not just the first, or primary, mortgage. This protects both the lender and borrower from accepting risk that can\u2019t be managed.\u00a0<\/span><\/p>\n

To calculate a borrower\u2019s CLTV, divide the total outstanding balance of loans secured by a property by the appraised value of the property. The result is expressed as a percentage. A higher CLTV ratio means the borrower has less equity in the property and is therefore more likely to default on the loan.<\/span><\/p>\n


\nHow to Calculate CLTV: CLTV Formula\u00a0<\/span><\/h2>\n

CLTV is calculated by dividing the total amount of all loans held by a borrower on a property by the total appraised value of the property securing those loans. To calculate the ratio, follow this CLTV formula:<\/span><\/p>\n

CLTV = (Value of Loan 1 + Value of Loan 2 + Value of Loan 3) \/ Value of Property<\/b><\/p>\n


\nCLTV Meaning & Why It Matters<\/span><\/h2>\n

Lenders use CLTV ratios to assess risk when considering a loan application. A high CLTV ratio means that the borrower has very little equity in the property and is more likely to default on the loan. A low CLTV ratio means that the borrower has more equity in the property and is less likely to default on the loan.\u00a0<\/span><\/p>\n

In general, lenders require borrowers to have a maximum CLTV of 80%, but the most creditworthy borrowers may be able to exceed this percentage. If a commercial real estate investor uses mezzanine financing<\/a> in addition to a conventional term loan to finance a property, they may be able to achieve a CLTV of between 85% and 90%<\/span><\/p>\n

If the borrower were to default on the loan with a higher CLTV, the lender would have a harder time recouping their losses. For this reason, lenders often charge a higher interest rate for loans with a high CLTV ratio. This protects both the lender and borrower from accepting risk that can\u2019t be managed. Understanding CLTV also tells a lender how much a borrower\u2019s property can decline in value before they owe more on the property than it is worth.\u00a0<\/span><\/p>\n

The ratio answers vital questions for lenders such as:<\/span><\/p>\n