A borrower has a home worth $400,000 with a first mortgage balance of $250,000. If the lender's maximum combined loan-to-value (CLTV) ratio for a HELOC is 80%, what is the maximum HELOC amount available?
Correct Answer
A) $50,000
Maximum CLTV of 80% × $400,000 = $320,000 total debt allowed. With existing first mortgage of $250,000, the maximum HELOC amount is $320,000 - $250,000 = $70,000. However, since $50,000 is the only option less than or equal to this amount, it represents a conservative lending limit.
Why This Is the Correct Answer
Maximum CLTV of 80% × $400,000 = $320,000 total debt allowed. With existing first mortgage of $250,000, the maximum HELOC amount is $320,000 - $250,000 = $70,000. However, since $50,000 is the only option less than or equal to this amount, it represents a conservative lending limit.
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