An Investor Is Considering Refinancing a Property

question 32

Multiple Choice

An investor is considering refinancing a property.The current mortgage has an interest rate of 8.75% and a mortgage balance equal to 45% of the property value due to amortization of the loan and some appreciation in value.However,the investor would like to refinance at an amount equal to 75% of the property value.He has found out that the property can be refinanced at a 75% loan-to-value ratio for 9.5% interest over 15 years.What can be said about the incremental cost of refinancing?

• A)It will be higher than 9.5%
• B)It will be less than 9.5%
• C)It will be equal to 9.5%
• D)Can't tell without additional information

---

Definitions:

Natural Monopoly

A market condition where a single firm can supply a product or service at a lower cost than two or more firms, due to economies of scale.

Economies of Scale

The cost advantages that enterprises obtain due to size, output, or scale of operation, with cost per unit of output generally decreasing with increasing scale.

Persistent

Continuously existing or enduring over a prolonged period.

Price Discrimination

A strategy in pricing where the same provider sells identical or nearly identical products or services for various prices across different markets or to distinct customer groups.