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

Home equity is the portion of the home's value that the owner actually owns, calculated as current market value minus any outstanding mortgage balance.

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 home equity loan disburses a lump sum at a fixed rate, while a HELOC is a revolving credit line with a variable rate from which the borrower draws as needed.

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

CLTV (Combined Loan-to-Value) adds all loans secured by the home and divides by the home's value; lenders use it to limit total borrowing to a safe percentage of home value.

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

Most lenders allow borrowers to access up to 80–85% CLTV, meaning total mortgage debt cannot exceed 80–85% of the home's appraised value.

Question 5

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

Accepted Answer

Second lien (junior lien)

Answer

Home equity loans and HELOCs are typically second liens, meaning the primary mortgage lender has priority over them in a foreclosure sale.

Loans Practice Test

Loans Practice Test

Loans Home Equity Loans