Mortgages increase the risk faced by homeowners. a. Explain how. The mortgage is leverage for the…

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Mortgages increase the risk faced by homeowners.

a. Explain how.

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

b. What happens to the homeowner’s risk as the down payment on the
house rises from 20 percent to 50 percent?

Instructions: Enter your
responses rounded to one decimal place.

With a down payment of 20
percent, the leverage ratio is

With a down payment of 50 percent, the
leverage ratio is

A down payment of 50 percent (Click to select) v the
leverage ratio by a factor of relative to a down payment of 20 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)

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