Calculation Terminology
Important terms used on the worksheets in this section include the following.
Potential Equity and Actual
Equity - determines the amount available for borrowing.
Potential
equity is the difference between the initial estimate of the current
market
value and the mortgage balance. The underwriter calculates the actual
equity after the appraisal is completed.
LTV and CLTV Ratios
- determines the amount a customer can borrow.
The LTV (loan to value) ratio is the percentage of the property value
allowed for borrowing on a first mortgage.
The
CLTV (combined loan to value ratio) is
a combination of the first and all junior
mortgages
against the appraised or purchased value of the property. The CLTV ratio
is calculated by dividing the total of all liens (i.e. the first mortgage
and all recorded
subordinate financing) by
the lower of appraised value or the purchase price (if purchased within
the last 12 months) at the time the loan is closed. The Combined Loan
to Value (CLTV) maximum is based on the
applicant’s current
credit score, debt to income and total
liens on the property. You can get the maximum CLTV percentage permitted
from the product guidelines.
The blended rate, or weighted average, is the overall cost of financing a property, expressed as an interest rate. It includes the interest rate on the mortgage or mortgages on the property, as well as the cost of any supporting products, such as mortgage insurance. You can calculate the blended rate by first multiplying the interest rate of each mortgage or loan product by its remaining balance, and then total that number. Next, add up the total of the mortgages on the property. Finally, divide the first total, which is the interest and other costs, by the second total, which is the indebtedness on the property. That quotient will be the blended rate.
