You purchase a home costing $480,000 with a 20% down payment. After shopping around for a mortgage, you select a lender who offers you two options for 30-year mortgages with monthly payments: Option I: A rate of 2.75% (APR) and an upfront fee (due immediately) of $3,840 Option II: A rate of 2.65% (APR) and an upfront fee (due immediately) of $9,600. a. Compute the monthly loan payment for each option. b. Compute the outstanding loan balance after 10 years for each option. c. If you prefer a lower true interest rate, which one should you choose?

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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You purchase a home costing $480,000 with a 20% down payment. After shopping around for a mortgage, you select a lender who offers you two options for 30-year mortgages with monthly payments:

Option I: A rate of 2.75% (APR) and an upfront fee (due immediately) of $3,840

Option II: A rate of 2.65% (APR) and an upfront fee (due immediately) of $9,600.

a. Compute the monthly loan payment for each option.

b. Compute the outstanding loan balance after 10 years for each option.

c. If you prefer a lower true interest rate, which one should you choose?

d. If you anticipate staying in the house for 10 years, which option should you choose?

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