In lending, what does "CLTV" stand for?

The term "CLTV" stands for Combined Loan-to-Value, which is a key metric used in the lending process, particularly in mortgage financing. It represents the total amount of outstanding loans secured by a property as a percentage of the property's appraised value. This includes not only the primary mortgage but also any secondary financing, such as a home equity loan or line of credit.

Understanding CLTV is crucial for lenders because it helps them assess the risk associated with a mortgage application. A higher CLTV can indicate greater risk, as it suggests the borrower has a smaller equity stake in the property, potentially making them more vulnerable to default if property values decrease. Conversely, a lower CLTV reflects a more significant amount of equity, suggesting that the borrower has a vested interest in maintaining their mortgage commitment.

This metric is particularly relevant for determining eligibility for various loan programs, pricing of loans, and the requirement for mortgage insurance. By assessing the CLTV, lenders can better manage their risk and ensure they make informed lending decisions.