PFIN 5th Edition by Randall Billingsley,Lawrence Gitman,Michael Joehnk

Exercise 5

Home equity lines. Max and Claudia Chadwick have a home with an appraised value of $180,000 and a mortgage balance of only $90,000. Given that an S L is willing to lend money at a loan-to-value ratio of 75 percent, how big a home equity credit line can Max and Claudia obtain? How much, if any, of this line would qualify as tax-deductible interest if their house originally cost $200,000?