Question
Maddy plans to make a down payment of $300,000 for a house that is worth $2,000,000. Unfortunately for Maddy, the only mortgage lender willing to
Maddy plans to make a down payment of $300,000 for a house that is worth $2,000,000. Unfortunately for Maddy, the only mortgage lender willing to give her a loan requires her to pay a rate of 12% APR. Note that competitive rates in the market are about 6% APR.
(a) Why is maddy unable to find a lender willing to give her a loan with a competitive rate?
(b) Maddy decides to take the loan with the 12% APR, where she will make a down payment of $300,000. If the value of Maddy house is expected to increase by 4% over the next year, by how much will maddy equity in this house increase during this same year?
Maddy plans to make a down payment of $300,000 for a house that is worth $2,000,000. Unfortunately for Maddy, the only mortgage lender willing to give her a loan requires her to pay a rate of 12% APR. Note that competitive rates in the market are about 6% APR.
(a) Why is maddy unable to find a lender willing to give her a loan with a competitive rate?
(b) Maddy decides to take the loan with the 12% APR, where she will make a down payment of $300,000. If the value of Maddy house is expected to increase by 4% over the next year, by how much will maddy equity in this house increase during this same year?
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