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

The interest rate for Laurel’s first mortgage is identified as 7.25%, compounded semi-annually not in advance. This signifies the specific terms under which interest will accrue on the mortgage balance.

Interest rates are commonly expressed as a nominal rate, which can be compounded at various intervals. Compounding semi-annually means that the interest is calculated and added to the principal twice a year. This particular compounding method can result in a higher effective interest rate compared to annual compounding, as interest earns interest more frequently.

In the context of mortgages, the choice of a higher nominal rate like 7.25% may reflect various risk factors, such as the borrower's creditworthiness, the loan-to-value ratio, or prevailing market conditions at the time the mortgage is issued.

Understanding this aspect of mortgages involves recognizing that while a lower nominal rate might seem attractive, the difference in compounding frequency can significantly affect the overall cost of borrowing. Therefore, in this case, the choice of 7.25% compounded semi-annually is appropriate based on the contribution it makes to calculating the effective interest rate over time.