Home equity loans to consumers are generally based on the residual value of a ho

Question

Home equity loans to consumers are generally based on the residual value of a home (i.e., market value less the remaining balance on the outstanding home mortgage loan) and the fraction of that value (known as the loan-to-value ratio ) that the lending institution is willing to lend. The customer’s borrowing base is the product of these two entities. Calculate the customer’s borrowing base in the situations described below:

Appraised Value of Mortgage Loan Lender’s Required
Borrower’s Home Balance Outstanding Loan-to-Value Ratio
a. $173,500 $ 67,800 75%
b. $64,150 $ 23,948 70%
c. $251,400 $111,556 80%
d. $789,000 $340,722 82%

Explanation / Answer

a) (173,500-67,800)*.75= 79,275, similarly b) 28,141 c) 111,875 d) 367,588

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