CMPS Home Equity and HELOC Strategies 2

Question 1

What is the primary structural difference between a cash-out refinance and a HELOC?

Accepted Answer

A cash-out refinance replaces the first mortgage; a HELOC is a separate second lien

Answer

A cash-out refinance is always tax deductible; a HELOC is not

Answer

A HELOC must be repaid within 5 years; a cash-out refinance has a 30-year term

Answer

A HELOC requires no appraisal; a cash-out refinance always requires one

Question 2

When calculating the available equity a homeowner can access, which formula is correct?

Accepted Answer

Available equity = (Appraised value × Max CLTV) – All outstanding mortgage balances

Answer

Available equity = Purchase price – Original loan balance

Answer

Available equity = Appraised value – Annual property taxes

Answer

Available equity = Current mortgage payment × Remaining term

Question 3

A lender uses the combined loan-to-value (CLTV) ratio primarily to:

Accepted Answer

Assess total mortgage exposure relative to the property's value

Answer

Determine the borrower's monthly debt-to-income ratio

Answer

Calculate the escrow impound account requirement

Answer

Set the required private mortgage insurance premium

Question 4

Which home equity product disburses a lump sum at closing and is repaid in equal monthly installments at a fixed interest rate?

Accepted Answer

Home equity loan (second mortgage)

Answer

Home equity line of credit (HELOC)

Answer

Cash-out refinance at a variable rate

Answer

Reverse mortgage

Question 5

In the context of home equity lending, 'seasoning' refers to:

Accepted Answer

The minimum time a borrower must own a property before accessing its equity

Answer

The lender's process of verifying the borrower's employment history

Answer

The period during which the HELOC rate is fixed before converting to variable

Answer

A government-mandated waiting period after a bankruptcy discharge

Question 6

Which of the following is a key advantage of using home equity to consolidate high-interest consumer debt?

Accepted Answer

Mortgage interest rates are typically lower than credit card rates, reducing borrowing costs

Answer

Consumer debt becomes secured and easier to discharge in bankruptcy

Answer

The borrower's credit score is immediately raised by 50 points upon consolidation

Answer

The consolidated balance is removed from the borrower's credit report

Question 7

How do rising interest rates most directly impact borrowers with an existing variable-rate HELOC?

Accepted Answer

Their monthly interest payments increase as the rate tied to Prime rises

Answer

Their credit limit automatically decreases

Answer

Their draw period is shortened by the lender

Answer

Their lien is elevated to first-position priority