Question

1. 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 clovers 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?

Explanation:

Step1: Calculate 80% of the home's market value

The formula is \(0.8\times\text{Market Value}\).
Substituting the given market value of \(\$275,000\), we get \(0.8\times275000 = 220000\).

Step2: Find the available amount for the home - equity loan

The available amount \(A\) is calculated by subtracting the remaining mortgage principal from the 80% of the home's value.
Let \(P=\) remaining mortgage principal (\(\$185,000\)) and \(V = 80\%\) of the home's value (\(\$220,000\)).
The formula is \(A=V - P\).
Substituting the values: \(A = 220000-185000\).

Answer:

\(35000\)