Which financing method involves borrowing based on the value of the property?

The chosen answer, which is an equity loan, is correct because this type of financing specifically uses the value of the property as collateral to determine how much can be borrowed. An equity loan enables homeowners to borrow against the equity they have built up in their property, which is the difference between the property’s current market value and the outstanding mortgage balance.

In this case, equity loans are often used for large expenses, such as home renovations or paying off higher-interest debt, as they allow borrowers to access cash based on the value of their home. The lender assesses the property value during the underwriting process, which heavily influences the terms of the loan, including the interest rate and loan amount.

Other financing methods, while they may involve some form of borrowing, do not specifically rely on the property’s value in the same manner. Personal loans are generally unsecured loans based on the borrower’s creditworthiness rather than any specific asset. Asset-based loans can involve various asset types but are not limited to real property and may include other assets like inventory or accounts receivable. Collateral loans do require an asset as security, but this can be broader than real estate and does not specifically focus on leveraging the equity of the property itself.