Combined Loan-to-Value (CLTV)

The term cumulative, or combined, loan-to-value (CLTV) ratio is used to calculate the total debt on a portion of commercial real estate property in relation to the value of the entire property.

The ratio of all secured loans on a building to its value is called the combined loan-to-value (CLTV) ratio. This ratio is used by lenders to assess the risk of default for a potential house buyer when more than one loan is involved.

Mortgage lenders control risk by using the CLTV. Both first lien holders and second lien holders consider CLTV. If subordinate debt is permitted by first lien holders, they will use the CLTV to evaluate whether or not a borrower can acquire it. If subordinate debt is even allowed, the primary mortgage lender frequently regulates the amount to make sure the borrower has enough stake in the outcome. Second lien holders assess their risk of entry based on the CLTV.

Typically, lenders are willing to provide loans to customers with excellent credit scores at CLTV ratios of 80% and more. The simple loan to value (LTV) ratio and the CLTV differ in that the LTV only accounts for the first or principal mortgage in its assessment.

How to calculate CLTV ratio

​CLTV=  Total Value of the Property

VL1 + VL2 + ... + VLn

​where:

VL = Value of loan

​Divide the total principal sums of all loans by the property's purchase price or fair market value to determine the combined loan-to-value ratio. Thus, to calculate the CLTV ratio, multiply the total of the factors stated below by the lesser of the property's sales price or its appraised value.

-         the first mortgage's initial loan balance

-         the drawn amount (amount owed on the principal) on a home equity line of credit (HELOC)

-         the outstanding principal amount of any and all closed-end subordinate borrowing, including a second or third mortgage.

Mortgage and banking experts use CLTV ratio to calculate the total amount of a property that is subject to liens (debt obligations). Lenders evaluate the risk of making a loan to a borrower using the CLTV ratio in addition to a few other measures, including the debt-to-income ratio and the standard loan to value (LTV) ratio.

CLTV vs. LTV

A loan to value (LTV) ratio and a combined loan to value (CLTV) ratio are two separate metrics. The CLTV ratio is an average of all secured loans on a property in proportion to the value of the property, whereas the LTV ratio primarily measures the primary mortgage with regard to the fair market value of a property. Both ratios are used by lenders. Before extending loans to borrowers, different lenders have different LTV and CLTV ratio standards that borrowers must meet.

The standards for CLTV are typically more lenient with primary lenders. In the case of a foreclosure, taking the aforementioned example into account, the principal mortgage holder will be paid in full before the second mortgage holder will be paid anything. The principal lien-holder obtains the entire amount due if the property value drops before the borrower defaults; however, the second lien-holder only receives the remaining amount. In the event of falling property prices, the principal lienholder is at lower risk.