CLTV (Cumulative Loan to Value Ratio): Calculator, Definition
Calculate CLTV Loan Ratios On Multifamily Properties and Apartment Buildings
CLTV: Cumulative Loan To Value Ratio
CLTV stands for cumulative, or combined, loan to value ratio. This ratio is meant to determine the combined value of all debt on a piece of commercial real estate relative to the total property value.
For example, if a borrower has a property worth $1 million, with a first mortgage of $500,000 and a second mortgage of $200,000, the combined debt amount is $700,000 and the CLTV would be 70%.
CLTV Meaning
The CLTV is used by commercial, and multifamily mortgage lenders to manage risk. First lien holders and second lien both take CLTV into account. First lien holders will use the CLTV to determine if they will allow a borrower to take on subordinate debt, if in fact they allow for subordinate debt. The first mortgage lender often caps the amount of subordinate debt—if the debt is even permitted—to ensure the borrower has sufficient skin in the game. Second lien holders look at the CLTV to determine their risk in entering a deal, because their loan is going on top of a loan that has a priority lien.
CLTV Calculator
The formula for CLTV (the cumulative, or combined loan to value ratio) is:
CLTV = Total Combined Loan Amounts / Total Property Value
What is considered a good CLTV?
The ideal CLTV for a commercial real estate loan is typically between 65-75%. This range is considered to be a safe amount of debt for the borrower to take on, while still providing the lender with a reasonable amount of security. Anything above 75% is considered to be a higher risk loan, and lenders may require additional security or collateral to approve the loan.
CLTV vs LTV (Loan-to-Value)
The CLTV is different from the loan to value ratio (LTV). The LTV is the ratio of the loan amount to the value of the property. The CLTV is the ratio of the combined loan amounts to the value of the property.
LTV Calculator
Conclusion
The CLTV is an important tool for lenders to manage risk when they are entering into a loan agreement. It helps lenders determine the amount of equity a borrower has in a property, the amount of leverage they are taking on, and the amount of risk they are taking on. By understanding the CLTV, lenders can make more informed decisions when they are evaluating a borrower’s ability to repay the loan.
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