Incre mental Financing and Junior Mortgage
Practice Proble ms
1. You can borrow 95% of the purchase price at a rate of 6.75%. You can borrow 80%
of the purchase price at 6.25%. What is the incremental cost of borrowing? Assume
monthly payments for 30 years.
2. Mr. Davis is assuming a mortgage of $95,000 that has a contract rate of 5.75% and 15
years until maturity. In addition, he is taking out a second mortgage for $30,000 at
9%. The second mortgage also has a 15 year term. What is the combined borrowing
cost? Payments occur monthly.
3. To purchase our home we have decided to choose an 80-10-10 mortgage with
monthly payments. The 80% loan is for 30 years and has a contract rate of 6.75%.
The 10% loan is for 15 years and has a contract rate of 9%. What is the lenders’
combined yield? The purchase price is $150,000