The CLTV (Combined Loan-to-Value) ratio calculator is a financial tool used to assess the risk involved in lending by comparing the total loan amount against the appraised value of a property. It is commonly used by lenders in the mortgage industry to determine how much debt a borrower is carrying relative to the value of the property being financed. The CLTV ratio is particularly important for homeowners who have multiple loans secured by the same property, such as a primary mortgage combined with a home equity line of credit (HELOC) or a second mortgage.
The CLTV ratio helps lenders evaluate the potential risk of a loan by showing whether the borrower is over-leveraged, which can impact the approval of loans or the interest rate offered. A higher CLTV ratio may indicate a higher risk for lenders, as the borrower has less equity in the property.
Formula of CLTV Ratio Calculator
To calculate the CLTV ratio, the following formula is used:
CLTV = (Total Loan Amount) / (Appraised Property Value) * 100%
Explanation:
- Total Loan Amount: This includes all loans secured by the property, such as the primary mortgage, any second mortgages, or home equity lines of credit (HELOCs). It is the total amount of debt that the borrower owes against the property.
- Appraised Property Value: This is the market value of the property, determined by a professional appraiser. It represents what the property would likely sell for on the open market.
This formula gives the CLTV ratio as a percentage, which helps both lenders and borrowers understand the level of risk associated with the property financing.
Pre-calculated Table for General Scenarios
To make it easier for users to understand common CLTV ratios, here is a table with different scenarios based on typical loan amounts and appraised property values:
| Total Loan Amount | Appraised Property Value | CLTV Ratio (%) |
|---|---|---|
| $200,000 | $250,000 | 80% |
| $150,000 | $200,000 | 75% |
| $100,000 | $300,000 | 33.33% |
| $250,000 | $500,000 | 50% |
| $180,000 | $300,000 | 60% |
This table helps users quickly understand how their CLTV ratio may vary depending on the loan and property value. A ratio higher than 80% may signal a riskier loan for lenders, and could result in higher interest rates or loan denial.
Example of CLTV Ratio Calculator
Let’s walk through an example to understand how the CLTV ratio calculator works.
Suppose a homeowner has the following financial details:
- Total Loan Amount: $250,000 (includes the primary mortgage and a HELOC)
- Appraised Property Value: $350,000
To calculate the CLTV ratio, we use the formula:
CLTV = $250,000 / $350,000 * 100%
CLTV = 0.714 * 100% = 71.4%
In this case, the CLTV ratio is 71.4%, which is generally considered a healthy ratio. Indicating that the borrower has significant equity in the property relative to the debt they owe.
Most Common FAQs
A high CLTV ratio indicates that a borrower has a large amount of debt relative to the value of their property. Lenders may view high CLTV ratios as risky. Which could result in higher interest rates, stricter loan conditions, or even denial of the loan application. Generally, a CLTV ratio over 80% is considered high.
To improve your CLTV ratio. You can either pay down some of your outstanding loans or increase the appraise value of your property. Increasing the property’s value may involve making improvements to the property, such as renovations. Which can raise the appraise value and thus lower the CLTV ratio.
CLTV (Combined Loan-to-Value) ratio includes all loans secured by the property, whereas LTV (Loan-to-Value) ratio only considers the primary mortgage. The CLTV ratio provides a more comprehensive view of a borrower's total debt on the property. Including secondary loans such as a home equity loan or HELOC.