Loans Home Equity Loans

Question 1

What is home equity?

Accepted Answer

The difference between the home's current market value and the outstanding mortgage balance

Answer

The original purchase price of the home

Answer

The total amount of mortgage payments made to date

Answer

The appraised value set at the time of purchase

Question 2

What is the primary difference between a home equity loan and a HELOC?

Accepted Answer

A home equity loan provides a lump sum with fixed payments; a HELOC is a revolving line of credit

Answer

A HELOC requires no credit check

Answer

A home equity loan has no interest charges

Answer

A HELOC can only be used for home improvements

Question 3

What does CLTV stand for in home equity lending, and why does it matter?

Accepted Answer

Combined Loan-to-Value; it measures total debt against home value to determine equity available

Answer

Current Lien Total Value; it tracks outstanding liens

Answer

Collateral Loan Term Value; it calculates equity after fees

Answer

Combined Lender Total Volume; it measures lender market share

Question 4

Most US lenders cap the combined loan-to-value (CLTV) ratio for a HELOC or home equity loan at what maximum percentage?

Accepted Answer

80–85%

Answer

50%

Answer

65%

Answer

100%

Question 5

Home equity loans and HELOCs are classified as which type of lien?

Accepted Answer

Second lien (junior lien)

Answer

First lien

Answer

Tax lien

Answer

Mechanic's lien

Question 6

Under what circumstances could a lender freeze or reduce a HELOC's available credit?

Accepted Answer

If the home's value declines significantly or the borrower's financial condition deteriorates

Answer

Only if the borrower files for bankruptcy

Answer

HELOCs can never be frozen once opened

Answer

Only after the draw period has ended