CMPS Home Equity and HELOC Strategies 3

Question 1

A HELOC's interest rate during the draw period is most commonly tied to which benchmark?

Accepted Answer

The Wall Street Journal Prime Rate

Answer

The 10-year Treasury yield

Answer

The 30-year fixed mortgage average

Answer

The Federal funds target rate directly

Question 2

Which federal regulation requires lenders to give borrowers specific disclosures—including the 'What You Should Know About Home Equity Lines of Credit' booklet—before opening a HELOC?

Accepted Answer

Regulation Z under the Truth in Lending Act (TILA)

Answer

RESPA (Real Estate Settlement Procedures Act)

Answer

HMDA (Home Mortgage Disclosure Act)

Answer

Regulation B under the Equal Credit Opportunity Act

Question 3

Under what circumstance may a lender legally freeze or reduce a HELOC credit line?

Accepted Answer

The property's value declines significantly, reducing the available equity cushion

Answer

The borrower makes all payments on time for 24 consecutive months

Answer

The borrower's credit score improves above 760

Answer

The lender decides to exit the HELOC market voluntarily

Question 4

What is the primary cash flow advantage of making interest-only payments during a HELOC's draw period?

Accepted Answer

Monthly payments are lower, freeing cash for other financial goals

Answer

The borrower builds equity faster than with a fully amortizing payment

Answer

The interest-only payments are always tax deductible regardless of use

Answer

The principal balance is automatically reduced each month

Question 5

Which mortgage planning strategy uses accumulated home equity to supplement retirement income or fund long-term care expenses for seniors?

Accepted Answer

Reverse mortgage (HECM)

Answer

Cash-out refinance into a 15-year fixed mortgage

Answer

HELOC with a 10-year draw period

Answer

Second home purchase using a piggyback loan

Question 6

When a HELOC is first opened but no balance is drawn, how does it typically affect the borrower's credit score?

Accepted Answer

It may slightly lower the score due to the hard inquiry and new account, but improves credit utilization ratio

Answer

It significantly raises the score because a new asset is recorded

Answer

It has absolutely no effect on the credit score in any way

Answer

It immediately causes a 100-point score increase by reducing debt-to-income ratio

Question 7

The federal 'right of rescission' gives borrowers who use their primary residence as collateral for a HELOC how many business days to cancel the transaction after closing?

Accepted Answer

3 business days

Answer

1 business day

Answer

5 business days

Answer

10 business days