Question

Clover is planning to take out a home equity loan to pay for the remodeling of her kitchen and bathroom. According to a recent assessment, the market value of her home is $275,000. The remaining principal on her current mortgage is $185,000. If Clover's lender follows the rule of thumb of limiting a mortgage to 80% of the estimated value of the home, what is the highest amount Clover could take out as a home equity loan?

Answer 1

First, let's calculate the limit amount for the mortgage: 80% of the estimated value of the house. Let's use a rule of three:

This way,

$x=\frac{275000\cdot80}{100}\rightarrow x=220000$

Out of those $220,000, Clover currently has $185,000 on her mortgage.

$220000-185000=35000$

Therefore, she could take $35,000 as a home equity loan.