Overview
Combined Loan-to-Value (CLTV) is an underwriting shortcut lenders use to see the full picture of liens on a home. Instead of looking only at the first mortgage, CLTV adds every loan secured by the property — first mortgage, second mortgage, home equity loan, and often the outstanding balance on a HELOC — then divides that sum by the property’s current appraised value. That percent helps lenders decide whether to approve a refinance and which programs and pricing apply.
CLTV matters because most investor guides and lender overlays set limits and pricing tiers by the amount of equity remaining after all liens are considered. In my mortgage practice I’ve seen borrowers with similar credit and income receive very different refinance offers because of a second lien that pushed their CLTV into a higher risk tier.
(For basic borrower guidance see the Consumer Financial Protection Bureau’s mortgage resources: https://www.consumerfinance.gov/owning-a-home/.)
How CLTV is calculated — step by step
- Add together the unpaid balances of every loan secured by the property. Typical items included: first mortgage, second mortgage, home equity loan, outstanding HELOC principal. (Some lenders also include subordinate liens such as seller-financing; always confirm with the lender.)
- Get the appraised value used for underwriting (or the most recent accepted valuation).
- Formula: CLTV = (Sum of all lien balances ÷ Appraised value) × 100
Example 1: First mortgage $300,000 + HELOC $40,000 on a home appraised at $400,000.
CLTV = (300,000 + 40,000) / 400,000 = 0.85 → 85% CLTV.
Example 2 (after paying down): First mortgage $260,000 + HELOC $20,000 on same $400,000 home → CLTV = 70%.
Why lenders care about CLTV
- Risk assessment: CLTV shows total borrower exposure and determines recovery prospects if the loan goes into default.
- Pricing and eligibility: Many conventional programs, investor overlays, and mortgage insurers use CLTV bands to set interest rates, fees, or to require private mortgage insurance (PMI).
- Program limits: Certain refinance options (cash‑out, streamlined, government programs) have specific CLTV or combined LTV limits.
Authoritative guidance and program rules differ — for example, FHA and VA programs have their own LTV rules, and Fannie Mae/Freddie Mac investor requirements will vary by loan purpose and occupancy. Check program-specific guidance before assuming a single CLTV threshold applies (see FHA and general mortgage resources at HUD/FHA: https://www.hud.gov/ and CFPB: https://www.consumerfinance.gov/).
Typical CLTV thresholds and their practical effects
While exact thresholds depend on loan product and investor, lenders commonly treat CLTV bands like these as rule-of-thumb:
- Under ~80% CLTV: Most conventional rate-and-term refinances and many cash-out refinances are easier to price and qualify for. Borrowers may avoid PMI or see reduced mortgage insurance costs.
- ~80%–90% CLTV: Considered higher risk. Borrowers may still refinance but will often face higher rates, greater fees, or additional documentation and restrictions. Some programs limit cash-out amounts in this band.
- Above ~90% CLTV: Many conventional investors and lenders will limit options or require mortgage insurance. Government programs sometimes permit higher CLTVs, but they come with program-specific rules.
Note: These bands are generalized. Specific programs (FHA, VA, USDA, Fannie/Freddie) and lender overlays can be more or less flexible. For details on how loan-to-value influences mortgage choices, see our article on how loan-to-value determines mortgage options: https://finhelp.io/glossary/how-loan-to-value-determines-mortgage-options/.
How CLTV affects different refinance types
- Rate-and-term refinance: Lenders mainly look to CLTV to determine pricing and whether PMI is required. Keeping CLTV below common thresholds improves the odds of obtaining a clean rate-and-term refinance.
- Cash-out refinance: Cash-out is the most sensitive to CLTV because you’re increasing the loan balance. Many investors cap allowable CLTVs for cash-out (to protect post‑refinance equity).
- Streamlined or government programs: Programs such as certain VA or USDA refinances may have different combined LTV rules or underwriting exceptions — always verify program guidance.
For a practical comparison between rate–and–term and cash‑out refinances, see: https://finhelp.io/glossary/how-rate-term-refinance-differs-from-cash-out-refinance/.
Real-world examples
Example A — Favorable CLTV: A homeowner has a first mortgage of $200,000 and a small home equity loan of $10,000 on a house appraised at $300,000. CLTV = 70%. This borrower typically qualifies for competitive rate-and-term refinancing and can often avoid PMI.
Example B — High CLTV barrier: A borrower has a first mortgage of $350,000 and a second lien of $50,000 on a $400,000 home. CLTV = 100% — refinance options are limited. They may need to pay down principal or eliminate the subordinate lien to access conventional refinance programs.
In practice I’ve guided clients toward partial payoff strategies or negotiated subordinate lien payoffs that brought CLTV below key thresholds and unlocked better pricing.
Strategies to improve CLTV before refinancing
- Pay down principal on either the first lien or junior lien. Even modest reductions can move you to a better pricing band.
- Consolidate subordinate debt into the first mortgage through a rate-and-term (no‑cash) refinance when possible — this can reduce the number of liens and simplify underwriting.
- Close or pay off a HELOC if its outstanding balance isn’t needed.
- Document and, if justified, appeal for a higher valuation: a recent appraisal or an automated valuation with strong comps can reduce CLTV by increasing the denominator.
- Consider waiting for home value appreciation if the market is improving; this is passive but effective.
- Explore government programs or specialty lenders that accept higher CLTVs when eligible (VA, FHA for qualified borrowers), but weigh costs and mortgage insurance rules first.
Interaction with mortgage insurance and pricing
CLTV directly affects whether PMI or mortgage insurance is required and how much it costs. Conventional lenders typically require PMI for loans where the borrower’s effective combined LTV means insufficient borrower equity. Mortgage insurers price coverage by CLTV bands and credit score. To remove PMI later, borrowers generally must reach specific LTV targets under the servicer’s rules.
For borrowers with complex lien structures, ask your lender to compute both LTV and CLTV, and to explain whether they use HCLTV (high combined LTV) or another combined measure in pricing. See our deeper note on high combined loan-to-value (HCLTV): https://finhelp.io/glossary/high-combined-loan-to-value-hcltv/.
When to consider alternatives to refinancing
- If CLTV is too high for conventional refinance, alternatives include: (a) negotiate a payoff of the subordinate lien; (b) pursue a limited cash‑out option if allowed; (c) explore a rate modification with your current servicer; or (d) work to pay down balances until CLTV improves.
- For small balance HELOCs, sometimes paying the HELOC off directly or rolling it into a refinance can be the simplest path.
Practical checklist before you apply
- Pull recent statements for all loans secured by the property and calculate current CLTV.
- Order (or confirm) what valuation the lender will use and whether they accept automated valuations.
- Check the refinance program’s published CLTV limits and any investor overlays.
- Run a preliminary pricing quote with and without subordinate liens to see the cost/benefit tradeoff.
- Ask about mortgage insurance triggers and cancellation policies.
- Compare rate-and-term vs cash‑out scenarios to see which retains acceptable CLTV after closing.
We maintain a detailed mortgage refinance checklist to help borrowers prepare: https://finhelp.io/glossary/mortgage-refinance-checklist/.
FAQs
- What’s the difference between LTV and CLTV? LTV compares the primary mortgage balance to value. CLTV adds all liens. Both matter; CLTV gives the fuller risk picture for refinances.
- Can a HELOC count against my CLTV if it’s unused? Typically only the outstanding balance is included. However, some lenders may consider credit line availability in certain calculations — confirm with your lender.
- Will improving my credit score matter if my CLTV is high? Yes. Credit score, debt-to-income, and CLTV are all used together. Better credit can offset some pricing impacts from higher CLTV but won’t eliminate program CLTV limits.
Sources and further reading
- Consumer Financial Protection Bureau — Mortgages and refinancing basics: https://www.consumerfinance.gov/owning-a-home/
- U.S. Department of Housing and Urban Development / FHA program resources: https://www.hud.gov/
Internal resources (FinHelp):
- How Loan-to-Value Determines Mortgage Options: https://finhelp.io/glossary/how-loan-to-value-determines-mortgage-options/
- How rate-and-term refinance differs from cash-out refinance: https://finhelp.io/glossary/how-rate-term-refinance-differs-from-cash-out-refinance/
- High Combined Loan-to-Value (HCLTV): https://finhelp.io/glossary/high-combined-loan-to-value-hcltv/
- Mortgage Refinance Checklist: https://finhelp.io/glossary/mortgage-refinance-checklist/
Professional disclaimer: This article is educational and not personalized financial advice. Program rules, investor guidelines, and valuation practices change; consult a licensed mortgage professional or housing counselor for advice tailored to your situation.
