Asked by Peyton Bowers on May 05, 2024
Verified
The RBC Royal Bank offers an "add-on option" on fixed-rate mortgages. The option allows the customer to borrow additional funds partway through the term of the mortgage. The interest rate charged on the combined mortgage debt becomes the weighted average of the old rate on the former balance and the current competitive rate on new mortgage financing. Suppose Herschel and Julie had a mortgage balance of $37,500 at 8%, when they borrowed another $20,000 at 7%. What interest rate will they be charged by the RBC Royal Bank on the new consolidated balance?
Add-On Option
A feature that can be added to a financial product or service, often for an additional cost, providing extra benefits or coverage.
Fixed-Rate Mortgages
A type of mortgage where the interest rate remains the same throughout the term of the loan.
Weighted Average
A calculation that takes into account the varying degrees of importance of the numbers in a data set.
- Calculate and analyze the effective interest rates on loans and investments.
Verified Answer
ZK
Learning Objectives
- Calculate and analyze the effective interest rates on loans and investments.