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

Most HELOCs are priced at Prime Rate plus or minus a margin, with the Wall Street Journal Prime Rate being the standard index used by lenders.

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

Regulation Z (implementing TILA) mandates early disclosures for HELOCs, including the federally required booklet explaining costs, risks, and terms of open-end home equity credit.

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

Lenders are permitted to suspend or reduce a HELOC when the property's value drops to a level where the credit line is no longer adequately secured by sufficient equity.

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

Interest-only payments during the draw period are lower than fully amortizing payments, giving the borrower greater short-term cash flow flexibility.

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

A Home Equity Conversion Mortgage (HECM), the most common reverse mortgage, allows homeowners aged 62+ to convert home equity into tax-free income or a credit line without monthly mortgage payments.

(CMPS) Certified Mortgage Planning Specialist Practice Test

(CMPS) Certified Mortgage Planning Specialist Practice Test

CMPS Home Equity and HELOC Strategies 3