An investor has $300,000 to invest as equity in a project requiring $1,400,000 in total cost/investment....

 

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An investor has $300,000 to invest as equity in a project requiring $1,400,000 in total cost/investment. She can either: A) obtain a conventional $1,100,000 mortgage loan at 9.50% amortizing with level monthly payments for 20 years, or: B) obtain a conventional $900,000 (first lien) mortgage loan at 9.00% 20 years and a second mortgage loan of $200,000 at 13.00% for 20 years, both amortizing with level monthly payments. 1. What is the difference between 1st lien and 2nd lien position? 2. Describe the additional risk assumed by a lender in the 2nd (or subordinate) lien position. 3. Which alternative is better for the borrower/investor assuming she keeps the property (and financing) for 20 years, and why? 4. Which alternative is better for the borrower/investor assuming she keeps the property (and financing) for 5 years only, and why? An investor has $300,000 to invest as equity in a project requiring $1,400,000 in total cost/investment. She can either: A) obtain a conventional $1,100,000 mortgage loan at 9.50% amortizing with level monthly payments for 20 years, or: B) obtain a conventional $900,000 (first lien) mortgage loan at 9.00% 20 years and a second mortgage loan of $200,000 at 13.00% for 20 years, both amortizing with level monthly payments. 1. What is the difference between 1st lien and 2nd lien position? 2. Describe the additional risk assumed by a lender in the 2nd (or subordinate) lien position. 3. Which alternative is better for the borrower/investor assuming she keeps the property (and financing) for 20 years, and why? 4. Which alternative is better for the borrower/investor assuming she keeps the property (and financing) for 5 years only, and why?

Answer rating: 100% (QA)

1A first lien mortgage is a loan that has priority over all other liens or claims on a property This means that in the event of a foreclosure the lend... View the full answer