Business, 22.10.2019 19:00 BakerElsie02

Aborrower can obtain an 80 percent loan at an 8 percent interest rate with monthly payments. the loan is to be fully amortized over 25 years. alternatively, he could obtain a 90 percent loan at an 8.5 percent rate for the same loan term (i. e., 25 years.) the borrower plans to stay in the home for the entire loan term. note: the dollar amount of the two alternative loan amounts is irrelevant. to show this, the answer key will solve this problem for two loan amounts—$200,000 and $500,000. you should solve this problem using both numbers and verify that the original loan amount is irrelevant. a) what is the incremental cost of borrowing the additional funds? b) how would your answer change if you were charged two points on the 90 percent loan? c) how would your answer change if you planned to be in the home only five years?

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Aborrower can obtain an 80 percent loan at an 8 percent interest rate with monthly payments. the loa...

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