A home is valued at $400,000. It has a $240,000 first mortgage and a new $60,000 HELOC credit limit. If the calculation uses the full HELOC limit, what is the combined loan-to-value ratio?
Correct Answer
B) 75%
Why this is correct: The Combined Loan-to-Value (CLTV) ratio is calculated by dividing the total amount of all liens (first mortgage + full HELOC credit limit) by the property value. As per the original explanation: First mortgage = $240,000; HELOC limit = $60,000. Total liens = $300,000. Property value = $400,000. CLTV = ($300,000 / $400,000) * 100% = 75%. Why the other choices are wrong: "60%" is wrong because it uses only the first mortgage LTV ($240,000 / $400,000), ignoring the HELOC. "80%" is wrong; it might come from an incorrect sum of liens (e.g., $320,000) or a miscalculation. "100%" is wrong as it would imply total liens equal the property value ($400,000), which is not the case here. Exam tip: For CLTV, remember to include the full credit limit of a HELOC (or second lien) in the total loan amount, not just the current balance, unless the question specifies otherwise.
Why This Is the Correct Answer
Why this is correct: The Combined Loan-to-Value (CLTV) ratio is calculated by dividing the total amount of all liens (first mortgage + full HELOC credit limit) by the property value. As per the original explanation: First mortgage = $240,000; HELOC limit = $60,000. Total liens = $300,000. Property value = $400,000. CLTV = ($300,000 / $400,000) * 100% = 75%. Why the other choices are wrong: "60%" is wrong because it uses only the first mortgage LTV ($240,000 / $400,000), ignoring the HELOC. "80%" is wrong; it might come from an incorrect sum of liens (e.g., $320,000) or a miscalculation. "100%" is wrong as it would imply total liens equal the property value ($400,000), which is not the case here. Exam tip: For CLTV, remember to include the full credit limit of a HELOC (or second lien) in the total loan amount, not just the current balance, unless the question specifies otherwise.
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