Question

Home equity loans are popular with finance companies. Which one of the following statements about home...

Home equity loans are popular with finance companies. Which one of the following statements about home equity loans is not correct?

Multiple Choice

  • If the borrower defaults on the home equity loan, the finance company can seize the house.

  • Bad debt expenses on home equity loans are lower than on many other types of finance company loans.

  • In 2007–2008 there was a sharp increase in defaults among home equity borrowers.

  • These loans allow customers to borrow on a line of credit secured with a second mortgage.

  • Interest payments on home equity loans are not tax deductible.

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Answer #1

Option E.

  • The statement that Interest payments on home equity loans are not tax deductible is not correct when we talk about home equity loans.
  • Home equity loan refers to the loan provided to the borrower by the lender as a second mortgage against its equity which is the value of the property. This value is used as collateral by the lenders, with which they can sell the property if the borrower fails to pay back the debt.
  • The interest payments on home equity loans are tax deductible until a certain limit which is set by the government.
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