Suppose homeowners own a home that has an appraised value of $250,000. The homeowners have a mortgage loan outstanding on the home of $260,000. Which of the following statements is incorrect regarding the mortgage loan?
A) This loan is underwater.
B) The loan to value ratio is 0.9615
C) The homeowners owe more than what the home is worth.

Question

Quizplus · Accepted Answer

The loan-to-value (LTV) ratio is calculated by dividing the mortgage amount by the appraised value of the property. In this case, it should be $260,000 / $250,000 = 1.04, not 0.9615. This means the homeowners owe more on their mortgage than the home's current value, making the loan underwater, as correctly described in options A and C.

Suppose Homeowners Own a Home That Has an Appraised Value