Asked by Vasilina Vorotnikova on May 15, 2024
Verified
A customer has a first mortgage of $100,000 at 5.5% and a second mortgage of $50,000 at 7.8%. What is the average rate of mortgage that the customer pays?
A) 6.7%
B) 7%
C) 5.9%
D) 6.5%
E) 6.3%
First Mortgage
A primary lien on a property that takes precedence over all other mortgages or liens, typically related to the original loan used to purchase the property.
Second Mortgage
A loan taken out on a property that is already mortgaged, with the second loan being subordinate to the first.
Mortgage Rate
The interest rate charged by a lender for a loan used to purchase a property.
- Understand the concept of average interest rate and its application in debt management.
Verified Answer
AC
aimee casasMay 21, 2024
Final Answer :
E
Explanation :
To find the average rate, you calculate the weighted average of the two rates based on the amounts of the mortgages. The calculation is as follows: ((100,000 * 5.5%) + (50,000 * 7.8%)) / (100,000 + 50,000) = (5,500 + 3,900) / 150,000 = 9,400 / 150,000 = 6.27%, which rounds to 6.3%.
Learning Objectives
- Understand the concept of average interest rate and its application in debt management.