When calculating CLTV, what value is used in the denominator?

The calculation of Combined Loan-to-Value (CLTV) ratio involves determining the relationship between all loans secured by the property and its value. To find CLTV, the total of all outstanding mortgages (or loan amounts) is divided by the appraised value of the property. The appraised value is utilized in the denominator because it represents the market value of the property at the time of the assessment. This ensures that the ratio reflects the proportion of debt relative to the asset's current worth.

Using the appraised value provides a realistic assessment of the property's value, which is critical for lenders as it helps to evaluate the risk associated with the loan. If the total loan amounts surpass the appraised value, this may indicate a riskier loan and could affect the lender's decision-making process regarding approval, terms, and interest rates.

In contrast, while the total loan amounts and the sales price of the property are important figures in mortgage transactions, they do not serve as the appropriate denominator for calculating the CLTV ratio. The total debt incurred is relevant as part of the numerator but does not align with the denominator requirement for this specific calculation.