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) ?

Question

Kendall Yates

Business

20 October, 10:58

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) ?

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Bartlett · Answer 1

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%