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)