What Does CLTV Mean in Real Estate Lending?

What Does CLTV Mean in Real Estate Lending?

CLTV stands for Combined Loan-to-Value ratio, also known as Cumulative Loan-to-Value. It’s a metric that compares the total amount of all loans secured by a property to the property's current market value. CLTV is especially relevant when a property has multiple loans, like a primary mortgage and a second mortgage (such as a home equity loan or line of credit).

CLTV Calculation

Why CLTV Matters

• Risk Assessment: Lenders use CLTV to assess the overall risk associated with lending. A higher CLTV indicates a higher risk for the lender since more of the property's value is financed through debt.
• Qualification: Borrowers with lower CLTV ratios often qualify for better interest rates and loan terms, as the lender's exposure to risk is lower.
• Equity Analysis: CLTV helps in evaluating how much equity a borrower has in the property. Higher equity often translates to a lower likelihood of default, as borrowers are less likely to abandon a property they have more invested in.

In short, CLTV provides a complete view of the leverage on a property, including all loans secured against it.