What Is the Combined Loan-to-Value Ratio?

Primary Mortgage

A primary mortgage, also known as a first mortgage loan, can enable a lender to obtain a security interest against real property. The terms "primary" and "first" refer to the lien position that a lender obtains against the title. A first mortgage lien provides a priority claim against other mortgage liens or judgments that are attached to a property's title records. However, tax liens can supersede a first mortgage holder's claim. First mortgage liens are typically larger than second mortgages, as most lenders will provide a first position lien at the inception of a home purchase. The majority of first position mortgage loans are financed for a 30-year term.

The loan-to-value (LTV) is a key factor used by mortgage lenders to help measure the risk of a single mortgage lien. A mortgage lender views the amount financed as a percentage of an appraisal valuation to determine the loan-to-value. For example, a borrower who supplies a $20,000 down payment on a property that has an appraisal value and selling price equal to $80,000 will have 75-percent loan to value. The example reflects a 25-percent down payment and would require a mortgage for the remaining $60,000. Generally, a larger down payment may help a borrower obtain a lower interest rate, as each dollar contributed by the borrower toward the purchase price reduces the amount that a lender has to finance.

A secondary mortgage, also known as a second mortgage, refers to a lender's claim against a secured property interest. Secondary mortgage liens enable a note holder to recover any equitable proceeds that remain after satisfying a first mortgage holder's claim. To compensate for the risk of a secondary mortgage position, lenders typically offer interest rates that can range from two to 10 percentage points above the average first mortgage interest rates.

The combined loan-to-value (CLTV) measures the risk of multiple mortgage loans. A first mortgage, second mortgage and any third-position loans are used to determine the CLTV. For example, a borrower who has a first mortgage balance of $60,000, while seeking a $10,000 home equity loan, on a home with an appraised value equal to $87,500, would need an 80-percent combined loan-to-value product ($87,500 appraised value x 80 percent = $70,000). ). The combined loan-to-value-ratio expresses the percentage of total liens against a property's market value.