A borrower finds that the incremental cost of borrowing an extra $10,000 in a first mortgage...

A borrower finds that the incremental cost of borrowing an extra $10,000 in a first mortgage loan is 14%. A second mortgage loan can be obtained at 15% in combination with a smaller (by $10,000) first mortgage. The borrower would be better off by borrowing with the combination of the smaller first mortgagee loan and a second mortgage loan for $10,000.

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True

False

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Expert Solution

False.

Even if the rate of interest is 15% in the second morgage loan, but still this combination is better as it is smaller than $10000 than the 1st morgage loan , and the extra asset which he has to morgage in first morgage loan can be used in other place if he intented to have the 2nd morgage loan. And smaller amount also mean smaller liability.

jeff jeffy answered 2 years ago

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