Combined Loan-to-Value (CLTV) Ratio

CLTV ratio summary:

  • Your combined loan-to-value (CLTV) ratio is a comparison of the money you owe on your home versus its market value. 

  • CLTV is used to determine how much money you can borrow in the form of a home equity loan or line or credit. 

  • Lenders decide your CLTV via an appraisal or specialized software. 

Combined loan-to-value (CLTV) definition

CLTV ratio calculates the percentage of your home's value you owe money on. It's figured by adding all outstanding home loan balances together and dividing that number by the current market value of your home. It's one tool lenders use to determine how much you’re eligible to borrow.

Key concept:

CLTV allows a lender to decide how large a home equity loan they may be willing to lend you. 

More about combined LTV

Combined loan-to-value (CLTV) is one of the factors lenders use to determine how much you’re eligible to borrow. CLTV compares the debt outstanding against your home to its current market value. Lenders usually use their own appraisers or home appraisal software to determine the current value of your home when you apply for a loan.

When you apply for a home equity loan, the lender will typically verify that your property is worth more than you’re borrowing. This is because your property is used to guarantee the loan. If you default on the loan, the lender could take steps to sell the home and recoup its losses. That’s normal for mortgages and home equity loans.

Combined LTV: a comprehensive breakdown 

Figuring out your CLTV is something you can do yourself. Imagine your home is worth $500,000 and you still owe $225,000 on the original mortgage. You want a home equity loan for $50,000.

  1. Add your mortgage balance ($225,000) to the amount you wish to borrow ($50,000). 

  2. Divide that amount ($275,000) by the current value of your home. 

  3. Your formula would look like this: 275,000 ÷ 500,000 = 0.55 (or 55%)

The CLTV limit for a home equity loan varies by lender, but is often 80% to 85%. Based on this scenario, your CLTV is 55%, far below the lender's limit. You would be free to apply for the home equity loan you want.

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Combined Loan-to-Value Ratio FAQs

Mortgages and home equity loans are secured loans. That means the loan is guaranteed by something valuable that the lender could take and sell if you fail to repay the debt. In this case, the loan is guaranteed by the home itself.

In a worst-case scenario, if you’re unable to pay the loan as agreed, the lender could foreclose on the home and sell it to get the money they are owed. Limiting the CLTV helps the lender make sure that you’re not borrowing more money than they could recover if they have to sell the home.

If a lender tells you that your CLTV is too high to borrow the amount of money you've requested, you can apply for a smaller loan or wait until you have more home equity. Home equity is the difference between your home’s market value and the amount you still owe on your mortgage. As you pay down your mortgage, and as your home’s value increases, you build equity. Having more home equity puts you in a better position to qualify for a home equity loan.



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