Question

Assume that houses in an area appreciate at the rate of 4 percent a year. A borrower expects to have a loan-to-value ratio of 90 percent. What is the approximate expected appreciation rate on home equity (EAHE)?

Answer 1

Answer:

The approximate expected appreciation rate on home equity (EAHE) is 40%

Explanation:

Loan to Value ratio is a term which determine the value of loan as compared to value of house. It is used to issue the loan amount on a property. The amount within the available limit is issued as a loan on the building.

Expected Appreciation rate  = Area appreciation / Home Equity ratio

Expected Appreciation rate  = Area appreciation / ( 100% - Loan to value ratio)

Expected Appreciation rate  = 4% / ( 100% - 90% )

Expected Appreciation rate  = 4% / 10%

Expected Appreciation rate  = 40%