What does CLTV represent?

The term CLTV stands for Combined Loan to Value. It is a critical metric used in underwriting and assessing the risk associated with mortgage lending. CLTV is calculated by taking the total amount of all loans secured by a property, including first and second mortgages, and dividing this by the appraised value of the property.

This figure is particularly important in determining how much equity a borrower has in their home relative to the total amount borrowed against it. A higher CLTV implies that a borrower has less equity in their property, which can signal a higher risk to lenders. Conversely, a lower CLTV suggests that the borrower has more equity, which can be seen as a positive factor when assessing loan applications.

Understanding CLTV is essential for both borrowers and lenders as it helps in making informed decisions regarding financing options and the terms that might be offered.