Home Equity Line of Credit Quiz

General Knowledge Quiz

1) A HELOC is a(n):

a) Unsecured line of credit.
b) Lump-sum loan secured by the borrower’s property.
c) Revolving line of credit secured by the borrower’s property.

2) HELOCs come with:

a) Fixed interest rates that do not change during the life of the loan.
b) Adjustable interest rates that change throughout the life of the loan.
c) Adjustable interest rates that change in five year intervals.

3) When considering HELOC applications, lenders want borrowers to have:

a) A high credit score, a low debt-to-income ratio, and reliable employment.
b) Property with a significant amount of equity.
c) All of the above.

4) Generally, a lender sets the borrower’s HELOC credit limit by:

a) Considering the borrower’s credit history.
b) Deducting the borrower’s gross income from the appraised value of his home.
c) Deducting the balance owed on the borrower’s first mortgage by a percentage of the appraised value of his home.

5) Borrowers generally withdraw money from their HELOC by:

a) Requesting money from the lender, writing special checks, or using a HELOC credit card.
b) Having the lender write a single check for one lump sum.
c) Receiving a monthly check from the lender.

6) During the HELOC draw period, the borrower must pay a bill:

a) Never. Nothing is due until the repayment period.
b) Monthly. The borrower makes principal and/or interest payments 12 times a year.
c) Annually. Accumulated interest is due once a year.

7) The average HELOC interest rate is about:

a) 1% above the current prime rate.
b) 3% above the current prime rate.
c) 5% above the current prime rate.

8) A HELOC “margin” refers to the:

a) Interest rate the borrower is charged during the life of the loan.
b) Difference between the prime rate and the interest rate the borrower is charged.
c) Additional fees a borrower must pay throughout the life of the loan.

9) A HELOC’s lifetime rate cap refers to the:

a) Number of times a HELOC’s interest rate can rise during the life of the loan.
b) Number of times a HELOC can have its term extended.
c) Limit on how much an interest rate can rise during the life of the loan.

10) The consequences of defaulting on a HELOC may include:

a) Foreclosure. The HELOC lender can force the sale of the property and take any proceeds not claimed by the borrower’s primary lender.
b) Collections. If the sale of the borrower’s property does not satisfy the loan, the lender may go after the borrower’s income or place a lien on future properties.
c) All of the above.