What is CLTV (combined loan-to-value ratio)?

If you're considering a home equity loan or home equity line of credit (HELOC), CLTV will become four of the most important letters in your vocabulary. 

CLTV stands for combined loan-to-value ratio. It measures how much you owe across all loans secured by your home—like your mortgage and a home equity loan—compared to your home's current value. Lenders use your CLTV to decide how much you might be eligible to borrow against your home equity.

What CLTV means

CLTV, or combined loan-to-value ratio, is the total of all loans secured by your home (including the one you want to apply for), divided by the home's current value. It’s expressed as a percentage. 

Lenders use CLTV when you apply for a home equity loan, to determine how much of the home's value is still owed and how much equity you have. CLTV includes every loan that uses your home as collateral, including your primary mortgage, any home equity loans, and any outstanding balance on a home equity line of credit (HELOC). Together, those balances are compared to what the home is currently worth.

How to calculate your CLTV

The formula works like this:

CLTV = Total owed on all home loans ÷ You’re home’s current value × 100

Here's a plain example. Let’s say your home is worth  $400,000, and your remaining mortgage balance is $280,000. Now assume, for example, that you're exploring a home equity loan of $40,000.

1. Add the balances: $280,000 + $40,000 = $320,000 

2. Divide the total by the appraised value: $320,000 ÷ $400,000 = 0.80

3. Multiply by 100 to express as a percentage: 80% CLTV

A few notes about the inputs:

• The appraised value is determined by a professional appraisal at the time of application, not your original purchase price or an online estimate. While you’re doing your initial research, it’s okay to rely on the property value you see on a real estate website, but your lender will use a more precise evaluation.

• For a HELOC, count the full credit limit, not the balance you owe.

• All loans secured by the same property count.

CLTV vs. LTV: what's the difference?

LTV, or loan-to-value ratio, measures only your primary mortgage balance against the value of the home. The formula goes like this:

LTV = (Total owed on the primary mortgage ÷ How much your home is worth) × 100

For example, using the same numbers as above: 

• LTV = ($280,000 ÷ $400,000) × 100 = 70%. 

• CLTV = ($320,000 ÷ $400,000) × 100 = 80%. 

READ MORE: What’s the difference between CLTV and LTV in home equity loans

How lenders use your CLTV ratio

Most lenders prefer a CLTV at or below 80%, though some may work with ratios up to 85% or higher, depending on the loan type and the borrower's overall financial picture. 

A higher CLTV generally means more risk for the lender, and that risk helps determine the loan offer in several ways:

• Eligibility: A CLTV above the lender's maximum may mean you're not ready to apply for an additional secured loan at this time.

• Borrowing limit: Even with more equity available, the lender's CLTV cap limits how much you may be able to borrow.

• Interest rate: A higher CLTV represents more risk to the lender, which could result in the lender offering a higher interest rate.

What is "lien priority"?

Lien priority is the order in which lenders are paid when a home is sold. The primary mortgage lender is paid first from the proceeds. The home equity lender is paid next. If there isn’t enough money to pay off both lenders, the home equity lender would need to collect the balance from you. This is what creates the added risk and is the reason second mortgages typically cost more than first mortgages.  

What your CLTV means for a home equity loan

If you apply for a home equity loan, the lender calculates CLTV by using your existing mortgage balance plus the amount you're requesting. If your current LTV is 70% and the lender's maximum CLTV is 80%, you may be able  to borrow up to an additional 10% of the home's appraised value.

Borrowing only what you need, rather than the most available to you, keeps your CLTV lower. That may expand your options and improve the terms you're offered.

How your CLTV changes over time

CLTV is not fixed. It moves in both directions.

Your CLTV goes down as your mortgage balance decreases with each payment, and as the value of your home goes up. A homeowner who purchased a home several years ago may find that their CLTV today is lower than when they first bought the home.

Your CLTV goes up when you take on additional debt against the home, such as a home equity loan. A decline in the home's value has the same effect, since the loan balances remain the same while the appraised value goes down.

Because lenders order an appraisal at the time of application, your CLTV at that moment may differ from what you'd estimate on your own.

Steps to lower your CLTV before applying

• Make regular mortgage payments to gradually reduce your loan balance and, in turn, your CLTV.

• Request only the amount of money you need to keep your combined balance lower.

• A stronger credit history profile may give lenders more flexibility, even when CLTV is higher. 

• Wait until your home is worth more and will appraise for a higher home value.