What happens to the homeowner risk

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Reference no: EM132002923

Question: Mortgages increase the risk faced by homeowners.

a. Explain how.

The mortgage is leverage for the homeowner, and leverage (Click to select)increases/reduces risk.

b. What happens to the homeowner's risk as the down payment on the house rises from 30 percent to 60 percent?

Instructions: Round your answers to 1 decimal place.

With a down payment of 30 percent, the leverage factor is .

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

A down payment of 60 percent (Click to select)reducesincreases the leverage ratio by a factor of relative to a down payment of 30 percent. (Hint: Refer to the Tools of the Trade: The Impact of Leverage on Risk)

Reference no: EM132002923

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