Home equity loans to consumers are generally based on the residual value of a home (i.e., market value less the remaining balance on the outstanding home mortgage loan) and the fraction of the value (known as the loan-to-value ratio) that the lending institution is willing to lend. The customer's borrowing base is the product of these two entities. Calculate the customer's borrowing base in the situations described below:
Appraised Value of
Borrower's Home Mortgage Loan
Balance Outstanding Lender's Required
Loan-to-Value Ratio
a. $173,500 $67,800 75%
b. $64,150 $23,948 70%
c. $251,400 $111,556 80%
d. $789,000 $340,722 82%