What is the average mortgage rate calculated for two mortgages valued at $626,000 at 5% and $130,000 at 6.5%?

What is the average mortgage rate calculated for two mortgages valued at $626,000 at 5% and $130,000 at 6.5%?

• A. 5.0%
• B. 5.2%
• C. 5.5%
• D. 6.0%

Answer: (C)

To find the average mortgage rate for two mortgages of different amounts and interest rates, the weighted average is calculated. This process takes into account the proportion of each mortgage relative to the total amount being financed. First, calculate the total value of both mortgages: - Mortgage 1: $626,000 at 5% - Mortgage 2: $130,000 at 6.5% Add the two amounts together: $626,000 + $130,000 = $756,000 Next, determine the weighted average interest rate by calculating the contribution of each mortgage to the total: 1. For the first mortgage: - Contribution = $626,000 * 5% = $31,300 2. For the second mortgage: - Contribution = $130,000 * 6.5% = $8,450 Now, add the contributions together: $31,300 + $8,450 = $39,750 Now divide this total contribution by the total mortgage amount to get the average rate: - Average rate = Total contribution / Total value of mortgages - Average rate = $39,750 / $756,000 Calculating this gives: Average rate = 0.0525 or approximately

To find the average mortgage rate for two mortgages of different amounts and interest rates, the weighted average is calculated. This process takes into account the proportion of each mortgage relative to the total amount being financed.

First, calculate the total value of both mortgages:

• Mortgage 1: $626,000 at 5%

• Mortgage 2: $130,000 at 6.5%

Add the two amounts together:

$626,000 + $130,000 = $756,000

Next, determine the weighted average interest rate by calculating the contribution of each mortgage to the total:

1. For the first mortgage:

• Contribution = $626,000 * 5% = $31,300

2. For the second mortgage:

• Contribution = $130,000 * 6.5% = $8,450

Now, add the contributions together:

$31,300 + $8,450 = $39,750

Now divide this total contribution by the total mortgage amount to get the average rate:

• Average rate = Total contribution / Total value of mortgages

• Average rate = $39,750 / $756,000

Calculating this gives:

Average rate = 0.0525 or approximately