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drw92 drw92
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A year ago
Jehona is a home owner who took out a mortgage to buy a new home. In 2005, this was what the balance sheet of his mortgage looked like:

AssetsLiabilities
Home value: $250,000Mortgage: $125,000
​​
​Net worth (equity): $125,000              
In 2006, Jehona is able to do a cash out refinance at a lower rate, while the value of her home increases to $300,000. Jehona cashes out (i.e., borrows) a total of $100,000 from her home for consumption. This changes her balance sheet to look like the following:

AssetsLiabilities
Home value: ?Mortgage: $225,000
​​
​Net worth (equity): ?      
What happens to Jehona's net worth (equity) on her home as a result of the cash-out refinancing?

▸ It declines to zero.

▸ It increases to $200,000.

▸ It stays the same.

▸ It declines to $75,000.
Textbook 
Macroeconomics

Macroeconomics


Edition: 3rd
Authors:
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johnmiltonjohnmilton
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A year ago
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