Question at position 17 In exchange for partial payment of a property’s income, a lender would most likely offer a higher interest rate?TrueFalse

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BlackTom AI · Accepted Answer

Question context: The statement presents a scenario where a lender, in exchange for partial payment of a property’s income, would most likely offer a higher interest rate.
Option 1: True. This option asserts that lenders would raise the interest rate when they are receiving only a portion of the property's income as payment. The reasoning behind this is that partial income payments introduce more risk for the lender, as the debt service is less assured and cash flow is more uncertain. To compensate for that higher risk, lenders typically demand higher compensation in the form of increased interest rates or less favorable loan terms. 
Option 2: False. This option would argue that partial income payments do not lead to higher rates. The flaw here is a failure to account for risk-based pricing: when a lender faces less predictable or reduced cash flow from income, the prudent response is to adjust pricing to reflect that added risk. In practice, lenders distinguish risk levels and adjust rate and terms accordingly, so the statement that there would not be a higher rate is inconsistent with risk management principles. 
Additional nuance: In credit markets, lenders evaluate income stability, debt service coverage, and collateral value. If partial payments reduce the cushion for debt service, the lender’s required return typically increases to maintain expected profitability and to offset potential losses. Conversely, some programs might offer favorable terms for borrowers with strong overall credit profiles or for secured deals, but such nuances do not invalidate the general principle that reduced income certainty tends to raise the rate. 
Therefore, considering risk compensation and pricing practices, the statement aligns with common lending behavior when cash flow from income is incomplete or uncertain, while the alternative would ignore standard risk-adjusted pricing.

Question at position 17 In exchange for partial payment of a property’s income, a lender would most likely offer a higher interest rate?TrueFalse

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Question at position 17 In exchange for partial payment of a property’s income, a lender would most likely offer a higher interest rate?TrueFalse

View Explanation

Log in for full answers

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