A borrower wants to use a HELOC to pay off credit card debt. What is an important risk the MLO should discuss with the borrower?
Correct Answer
B) The borrower's home serves as collateral and could be lost if payments are not made
A critical risk of using a HELOC to pay off unsecured debt like credit cards is that the borrower's home now serves as collateral. If the borrower cannot make payments, they risk foreclosure and loss of their home.
Why This Is the Correct Answer
A critical risk of using a HELOC to pay off unsecured debt like credit cards is that the borrower's home now serves as collateral. If the borrower cannot make payments, they risk foreclosure and loss of their home.
More Mortgage Knowledge Questions
A borrower is comparing two loan offers: Loan A has no points and 4.5% interest rate, Loan B has 2 points and 4.0% interest rate. The loan amount is $400,000. How much will the borrower pay upfront for the points on Loan B?
A lender charges a 1% origination fee on all loans. For a borrower obtaining a $250,000 mortgage, what is the maximum origination fee that can be charged without violating the points and fees test under the ATR/QM rule for a first-lien mortgage?
Under what circumstances can a Qualified Mortgage include a prepayment penalty?
A borrower is considering paying discount points to reduce their interest rate. Each point costs 1% of the loan amount and reduces the rate by 0.25%. On a $300,000 loan, how much would the borrower pay for 2 discount points?
A borrower asks about the difference between discount points and origination fees. What is the most accurate explanation?
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Under the Truth in Lending Act (TILA), what is the minimum cancellation period a borrower has for a home equity loan secured by their principal residence?
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