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

To determine the interest rate for Laurel's second mortgage, one must consider the common practices in the mortgage industry regarding interest rates and compounding methods. The context likely indicates that option A, with an interest rate of 3.95% compounded semi-annually not in advance, reflects a competitive and reasonable rate, especially for a second mortgage.

When mortgages are structured, the terms can vary significantly based on factors such as the borrower's creditworthiness, the type of loan, and prevailing market conditions. Lower interest rates, like the one presented in option A, generally appeal to borrowers, particularly for second mortgages, which often carry higher rates due to increased risk for lenders. Additionally, the semi-annual compounding is a frequently used method in Canada, which allows for interest to accumulate twice a year, providing a balance where the borrower benefits with a lower overall interest charge compared to more frequent compounding.

In contrast, the other choices present higher interest rates, such as 4.25%, 5.5%, and 6.0%, which might not be competitive offerings in a current market where lower rates like 3.95% could be available. Each of these alternative rates, compounded quarterly or monthly, would result in higher costs to the borrower