Finance
A Minnesota homeowner wants to borrow against their home equity without refinancing their existing first mortgage. The most appropriate product would be:
AA second mortgage or home equity line of credit (HELOC)✓ Correct
BA new first mortgage for the combined amount
CA personal unsecured loan
DA reverse mortgage
Explanation
A home equity loan (second mortgage) or HELOC allows homeowners to borrow against accumulated equity without disturbing an existing first mortgage. This is advantageous when the existing first mortgage has a favorable interest rate.
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Key Terms to Know
Discount Points
Prepaid interest paid to a lender at closing to reduce the mortgage interest rate, with each point equal to 1% of the loan amount.
AmortizationThe gradual repayment of a loan through scheduled periodic payments that cover both principal and interest.
Adjustable-Rate Mortgage (ARM)A mortgage with an interest rate that changes periodically based on a financial index, usually after an initial fixed-rate period.
Loan-to-Value Ratio (LTV)The ratio of a mortgage loan amount to the appraised value or purchase price of a property, expressed as a percentage.
Math Concepts
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