Statements regarding home equity loans

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Reference no: EM132006069

1. After meeting with you, Justin and Caitlin understand the need for an emergency fund. Justin is a carpenterand Caitlin teaches at a local school. They ask you how much they should have in this fund. Which of thefollowing is the best response?

A) An amount equal to 1 month’s expenses

B) An amount equal to 3 months’ expenses

C) An amount equal to 6 months’ expenses

D) An amount equal to 12 months’ expenses

2. Which of the following statements regarding home equity loans are CORRECT?

1. They are also referred to as second mortgages.

2. Home equity loans may be used for any purpose without affecting the income tax deductibility of theloan interest.

3. With a home equity loan, the current equity in the homeowner’s primary residence is used tocollateralize the funds.

4. With these types of loans, clients are given an unlimited amount of credit from which they can drawfrom as funds with bank approval for each transaction.

A) 1 and 2

B) 3 and 4

C) 1, 2 and 3

D) 1, 2, 3 and 4

3. John and Kelly recently moved to the East Coast. John is in the Navy and wishes to live off base for this tour ofduty, which is expected to last no more than 4 years. John and Kelly want to purchase a home; however, theyexpect to move after John’s tour of duty. Which of the following types of mortgages is best for John and Kelly ifthey want to keep their monthly mortgage payments to a minimum?

A) A growing equity mortgage

B) A 15-year fixed-rate mortgage

C) An adjustable rate mortgage without a cap on the interest rate

D) An adjustable rate mortgage with a ceiling on any future adjustments

5. A generally accepted rule in personal financial planning is that the consumer debt ratio should NOT exceed

A) 20%

B) 28%

C) 33%

D) 36%

Reference no: EM132006069

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