What is the combined discount rate given a 1st mortgage of 60% at 7% and a 2nd mortgage of 20% at 10%?

To determine the combined discount rate of the first and second mortgages, you need to calculate the weighted average of the interest rates based on the respective amounts of each mortgage. The percentages of the mortgages indicate their proportions of the total financing.

For a first mortgage of 60% at an interest rate of 7%, you compute the contribution of this mortgage as follows:

First Mortgage Contribution = 60% * 7% = 0.6 * 0.07 = 0.042 or 4.2%.

For a second mortgage of 20% at an interest rate of 10%, the contribution is:

Second Mortgage Contribution = 20% * 10% = 0.2 * 0.10 = 0.02 or 2.0%.

Now, the weights for the combined discount rate must reflect the total proportions of the financing. The total percentage of the first and second mortgages combined is 60% + 20% = 80%. To find the combined rate, one must also consider the remainder of the financing, which typically is 100%, making the total financing 100% – 80% = 20% that is often assumed to be at a 0% interest rate if not fixed otherwise