Mortgage Loan Originator (MLO) Licensing Practice Test 2025 - Free MLO Practice Questions and Study Guide

To calculate the Combined Loan-to-Value (CLTV) ratio, you must first determine the total outstanding mortgage balances and the appraised value of the property. CLTV is calculated using the formula:

CLTV = (First Mortgage + Second Mortgage) / Appraised Value

In this scenario, Tom has a first mortgage of $200,000 and a second mortgage of $60,000. The total of these mortgages is:

$200,000 + $60,000 = $260,000

The home is appraised at $310,000. Now, plug these values into the CLTV formula:

CLTV = $260,000 / $310,000

Next, when you perform the division:

CLTV = 0.8387 (approximately)

To express this as a percentage, multiply by 100:

CLTV ≈ 83.87%

Rounding this percentage gives you approximately 84%. This indicates that Tom's combined loans constitute about 84% of the home's appraised value. The higher the CLTV ratio, the greater the risk to lenders, as it indicates more of the property's value is financed through loans.

This understanding of CLTV is essential for a Mortgage Loan Originator when assessing the risk