Mortgages increase the risk faced by homeowners.

a$.$ Explain how.

The mortgage is leverage for the homeowner, and leverage risk.

b$.$ What happens to the homeowner$$s risk as the down payment on the house rises from $25$ percent to $60$ percent?

Instructions: Enter your responses rounded to one decimal place.

With a down payment of $25$ percent, the leverage ratio is $.$

With a down payment of $60$ percent, the leverage ratio is $.$

A down payment of $60$ percent the leverage ratio by a factor of relative to a down payment of $25$ percent. $($Hint: Refer to the Tools of the Trade: The Impact of Leverage on Risk; Leverage ratio $=$ cost of the investment $/$ owner's contribution to the purchase$)$