What Is Combined Loan Value Ratio?

March 13, 2023

Introduction

Combined loan value ratio (CLTV) is a measure of the total amount of debt a borrower has relative to the value of the property they are purchasing. It is calculated by dividing the total amount of all loans secured by a property by the appraised value or purchase price of that property. The CLTV ratio is an important factor in determining whether a borrower will be approved for a loan and what interest rate they will receive.

For example, if a borrower has two loans secured by their home, one for $100,000 and one for $50,000, and their home is appraised at $200,000, then their CLTV ratio would be 150%. This means that the total amount of debt secured by the home is 150% of its appraised value.

It's important to note that lenders typically have different requirements when it comes to CLTV ratios. Some lenders may require a lower CLTV ratio than others in order to approve a loan application. Additionally, some lenders may offer better terms and interest rates to borrowers with lower CLTV ratios.

Why Is Combined Loan Value Ratio Important?

The combined loan value ratio is an important factor in determining whether or not a borrower will be approved for a loan and what interest rate they will receive. A higher CLTV ratio can indicate that the borrower has more debt relative to their income or assets, which can make them appear as higher risk borrowers to lenders. As such, lenders may be less likely to approve loans with higher CLTV ratios or may offer less favorable terms and interest rates on those loans.

Additionally, having too high of a combined loan value ratio can also put borrowers at risk of defaulting on their loans if they are unable to make payments due to financial hardship or other circumstances. This is because having too much debt relative to their income or assets can make it difficult for borrowers to keep up with payments on all of their debts.

How Can You Lower Your Combined Loan Value Ratio?

There are several ways you can lower your combined loan value ratio in order to improve your chances of being approved for a loan or receiving better terms and interest rates on your loan:

1) Pay off existing debts: Paying off existing debts can help reduce your overall debt-to-income (DTI) ratio as well as your combined loan value ratio (CLTV). This can help improve your chances of being approved for a loan or receiving better terms and interest rates on your loan. 2) Increase down payment: Increasing your down payment on the property you are purchasing can also help reduce your combined loan value ratio since it reduces the amount you need to borrow relative to the purchase price or appraised value of the property. 3) Refinance existing loans: Refinancing existing loans can also help reduce your combined loan value ratio since it reduces the total amount you owe relative to the purchase price or appraised value of the property you are purchasing. Additionally, refinancing may also allow you to get better terms and interest rates on your loans which could save you money over time.

Conclusion

The combined loan value ratio (CLTV) is an important factor in determining whether or not you will be approved for a loan and what kind of terms and interest rates you will receive on that loan. It's important to understand how this measure works so that you can take steps towards improving it if necessary in order to increase your chances of being approved for a loan or receiving better terms and interest rates on that loan.