Assume that you have purchased a home and can qualify for a $300,000 loan. You have narrowed your mortgage search to the following two options: Mortgage B Loan term: 15-years Annual interest rate: 4.5 percent Monthly payments Up-front financing costs: $7,500 Discount points: 3 Mortgage A Loan term: 30 years Annual interest rate: 5 percent Monthly payments Up-front financing costs: $5,500 Discount points: 3
Assume that you have purchased a home and can qualify for a $300,000 loan. You have narrowed your mortgage search to the following two options: Mortgage B Loan term: 15-years Annual interest rate: 4.5 percent Monthly payments Up-front financing costs: $7,500 Discount points: 3 Mortgage A Loan term: 30 years Annual interest rate: 5 percent Monthly payments Up-front financing costs: $5,500 Discount points: 3
Pfin (with Mindtap, 1 Term Printed Access Card) (mindtap Course List)
7th Edition
ISBN:9780357033609
Author:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk
Publisher:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk
Chapter5: Making Automobile And Housing Decisions
Section: Chapter Questions
Problem 8FPE
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Note: 1 discount point = 1% of loan amount
a)Calculate the effective borrowing cost to the borrower.
b) Compute Lender's Yield.
c) Based on the effective borrowing cost, which loan would you choose? Explain your answer using your calculations from a) and b).
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