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 remaining balance on the outstanding home mortgage loan) and the fraction of the value know as the loan to value ratio that the lending institution is willing to land. The consumer borrowing base is the product of these two entries. Calculate the consumer borrowing base in the situation described below:
Appraisal value borrower s home,
A, $173,500
B, $64,150
C, $ 251,400
D, $789,000
Mortgage loan balance outstanding
$67,800
$23,948
$ 111,556
$340,722
Lenders required loan to value ratio
75%
70%
80%
82%

Explanation / Answer

The consumer borrowing base is equal to (Appraisal value - mortgage loan balance outstanding) * required loan to value ratio. A. (173,500 - 67,800) * .75 B. (64,150 - 23,948) * .7 C. (251,400 - 111,556) * .8 D. (789,000 - 340,722) * .82

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