What is the interest rate for Gail's second mortgage?

In the context of determining the interest rate for a second mortgage, the rate often reflects the risk associated with the loan's position. Typically, second mortgages carry higher interest rates compared to first mortgages due to their subordinate status. The interest rate of 4.5% as the selected answer indicates a level of risk that lenders manage by setting a rate that is higher than the average for a secured first mortgage but still competitive in the current market.

This rate takes into account various factors such as current economic conditions, lending policies, and the creditworthiness of the borrower. A rate of 4.5% can be considered reasonable, aligning with typical market conditions for second mortgages, especially in a stable lending environment.

Other rates presented may reflect extremes, either too low, suggesting an unreasonably favorable lending environment, or too high, which may not attract potential borrowers to take on such debt. Therefore, 4.5% stands out as a balanced option considering the risk profile and market expectations for second mortgages at the time.