A Texas homeowner's property is valued at $400,000 with a first mortgage of $160,000. She takes the maximum home equity loan at 7% annual interest. What is her monthly interest payment on the home equity loan?
Correct Answer
A) $933
Max HEL = ($400,000 × 0.80) − $160,000 = $320,000 − $160,000 = $160,000. Monthly interest = $160,000 × 0.07 / 12 = $11,200 / 12 = $933.33 ≈ $933.
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Related Concepts
A fixed-rate mortgage has an interest rate that remains constant for the entire term of the loan, resulting in equal monthly principal and interest payments throughout the life of the mortgage.
Foreclosure is the legal process by which a lender takes possession of a property when a borrower fails to make mortgage payments. It allows the lender to sell the property to recover the outstanding debt.
The loan-to-value ratio (LTV) is the percentage of a property's appraised value or purchase price (whichever is lower) that is being financed through a mortgage. LTV = Loan Amount / Property Value.
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Previous Question
A Texas homestead is appraised at $600,000 with a first mortgage of $288,000. The homeowner takes the maximum home equity loan and pays 1.5 discount points at closing. How much will she pay in discount points?
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