Question:

What is LTV (Loan-to-Value Ratio) on mortgage loans?

Answer:

The LTV (Loan-to-Value Ratio) on mortgage loans is the ratio between the amount of the first mortgage and the appraised property value.

For example, if you are buying a house worth $350,000 and take out $300,000 as a first mortgage to purchase the property, the loan-to-value ratio will be 300,000/350,000 which is equal to 85.7% LTV.

What is CLTV (Combined Loan-to-Value Ratio) on mortgage loans?

The combined LTV ratio, or CLTV, is the combined indebtedness ratio compared to a property value. That is, if you owe $200,000 as a first mortgage on a property worth $350,000 and you take a home equity line of credit (HELOC) worth $50,000 the combined LTV on your property will be 250,000/350,000 which results in around 71% CLTV.

What are LTV (Loan-to-Value Ratio) and CLTV (Combined Loan-to-Value Ratio) on mortgage loans used for?

The LTV value is used by lenders to determine the terms of the loan for the homebuyer. The larger the down payment, the lower the LTV and the better terms for the borrower. Also, LTV higher than 80% results in PMI (private mortgage insurance) premiums for the borrower.

The Combined LTV (Loan-to-Value Ratio) on home loans is used by lenders for much the same purpose. The CLTV is most commonly considered when a first mortgage already exists and the borrower is looking to take out a second mortgage or equity loan. Sometimes, lenders will allow the CLTV to exceed the property value would lend up to 110% or 125% of what the house costs.

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