CMPS Home Equity and HELOC Strategies

Question 1

What is the typical maximum combined loan-to-value (CLTV) ratio most lenders allow when approving a HELOC?

Accepted Answer

90%

Answer

70%

Answer

80%

Answer

100%

Question 2

How does a HELOC differ from a home equity loan in terms of interest rate structure?

Accepted Answer

HELOCs carry a variable rate; home equity loans typically carry a fixed rate

Answer

HELOCs carry a fixed rate; home equity loans carry a variable rate

Answer

Both products always use fixed interest rates

Answer

Both products always use variable interest rates

Question 3

What is the 'draw period' in a HELOC?

Accepted Answer

The window in which the borrower can access funds up to their credit limit

Answer

The time during which the lender evaluates the borrower's creditworthiness

Answer

The period when the borrower must repay the entire outstanding balance

Answer

The time after the loan closes when the rate is locked

Question 4

During the repayment period of a HELOC, what typically happens to the borrower's monthly payments?

Accepted Answer

Payments increase because principal repayment is now required

Answer

Payments drop to interest-only

Answer

The credit line resets and the borrower may draw again

Answer

The lender converts the balance to a fixed-rate home equity loan automatically

Question 5

Which scenario best illustrates a prudent use of a HELOC as a financial planning tool?

Accepted Answer

Consolidating high-interest credit card debt at a lower interest rate

Answer

Funding a vacation to avoid depleting savings

Answer

Purchasing speculative investments in a volatile market

Answer

Covering recurring monthly living expenses long term

Question 6

What happens to an outstanding HELOC balance when the homeowner sells the property?

Accepted Answer

The outstanding balance must be paid off at closing from sale proceeds

Answer

The HELOC balance is forgiven by the lender at closing

Answer

The HELOC is assumed by the buyer without any approval process

Answer

The HELOC converts to an unsecured personal loan

Question 7

Under the Tax Cuts and Jobs Act (TCJA), HELOC interest is deductible only if the funds are used for which purpose?

Accepted Answer

Buying, building, or substantially improving the home securing the loan

Answer

Any personal expense including vacations and vehicles

Answer

Investing in securities held in a taxable brokerage account

Answer

Paying down student loans or medical bills