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A property is purchased for $200,000 with an 80 percent LTV. After five years, the owner’s equity is $80,000. What would be the approximate annual expected appreciation rate on home equity (annual EAHE)?

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tutordamola

Answer:

The answer is 14.9%

Explanation:

Purchase price = $200,000

Loan-to-value(LTV) = 80%

Number of years = 5 years

Owner's equity = $80,000.

Loan amount = purchase price x LTV

=$200,000 x 80%

=$160,000.

Annual expected appreciation rate on home equity =

(Loan÷equity)^-n

$160,000/$80,000^-5

=14.9%

Therefore, Annual expected appreciation rate on home equity is 14.9%

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