A mortgage company lends the Miller family $100,000 to buy a house worth $105,00

Question

A mortgage company lends the Miller family $100,000 to buy a house worth $105,000. During the next year, there is deflation and all prices, including house prices, unexpectedly fall by 10%. Use this information to answer questions 23 to 26.
23. After the first year, who is better off?
a. The Miller family
b. The mortgage company
c. Neither one is better off

24. After the first year, who is worse off?
a. The Miller family
b. The mortgage company
c. Neither one is worse off

25. What if the deflation continued for a number of years—do you think the Millers would be able to pay off their mortgage? Why or why not?

Explanation / Answer

23) B. Because the Miller's will be stuck paying the full amount of $105,000 + interest rates. 24) A. 25) The Millers would eventually have to shortsale or refinance due to the high interest rates that will follow the deflation.

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.