When purchasing a $100,000 house, a borrower is comparing two loan alternatives. The first loan is an 80% loan at 4% with monthly payments of $591.75 for 15 years. The second loan is 90% loan at 5% with monthly payments of $526.13 over 25 years. What is the incremental cost of borrowing the extra money assuming the loan will be held for the full term?

When purchasing a $100,000 house, a borrower is comparing two loan alternatives. The first loan is an 80% loan at 4% with monthly payments of $591.75 for 15 years. The second loan is 90% loan at 5% with monthly payments of $526.13 over 25 years. What is the incremental cost of borrowing the extra money assuming the loan will be held for the full term?

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

See similar textbooks

Similar questions

When purchasing a $210000 house, a borrower is comparing two loan alternative. The first loan is a 90% loan at 10.25% for 25 years. The second loan is an 85% loan for 9.75% over 15 years. Both have monthly payments and the property is expected to be held over the life of the loan. What is the incremental cost of borrowing the extra money? A. 20.25% B. 16.17% C. 11.36% D. 12.42% Please show all steps
A borrower is purchasing a property for $200,000 and can choose between two possible loan alternatives. Loan A is a 90% loan for 25 years at 8% interest and 2 points and Loan B is a 95% loan for 25 years at 8.75% interest and 1 point. Assume the loans will be held to maturity, what is the incremental cost of borrowing the extra money? Assume that the loans will be repaid in 5 years. What is the incremental cost of borrowing the extra money? Rework parts (a) and (b) assuming the lender is charging 3 points on Loan A and 2 point on Loan B. What is the incremental cost of borrowing?
A borrower is purchasing a property for $1,800,000 and can choose between two possible loan alternatives. The first is a 75% loan for 25 years at 9% interest and 1 point and the second is an 80% loan for 25 years at 9.25% interest and 1 point. Assume the loan term will be 5 years. What is the incremental cost of borrowing the extra money?
A borrower is purchasing a property for $180,000 and can choose between two possible loan alternatives. The first is a 90% loan for 25 years at 9% interest and 1 point and the second is a 95% loan for 25 years at 9.25% interest and 1 point. Assuming the loan will be held to maturity, what is the incremental cost of borrowing the extra money? O 12.01% O 14.34% 13.50% O 13.66%
Suppose you take out a $117,000, 20-year mortgage loan to buy a condo. The interest rate on the loan is 5%. To keep things simple, we will assume you make payments on the loan annually at the end of each year. a. What is your annual payment on the loan? b. Construct a mortgage amortization. c. What fraction of your initial loan payment is interest? d. What fraction of your initial loan payment is amortization? e. What is the total of the loan amount paid off after 10 years (halfway through the life of the loan)? f. If the inflation rate is 3%, what is the real value of the first (year-end) payment? g. If the inflation rate is 3%, what is the real value of the last (year-end) payment? h. Now assume the inflation rate is 6% and the real interest rate on the loan is unchanged. What must be the new nominal interest rate? i-1. Recompute the amortization table. i-2. What is the real value of the first (year-end) payment in this high-inflation scenario? j. What is the real value of the last…
A borrower is purchasing a property for $180,000 and can choose between two possible loan alternatives. The first is a 90% loan for 25 years at 9% interest and the second is a 95% loan for 25 years at 9.25% interest. Assuming the loan will be held to maturity, what is the incremental cost of borrowing the extra money? 18.75% OO 14.34% 13.50% 12.01%
Considering the following information, what is the NPV if the borrower refinances the loan? Expected holding period: 3 years; current loan balance: $400,000; current loan interest: 5.875%; remaining term on current mortgage: 15 years; new loan interest: 3.625%; new loan term: 15 years; cost of refinancing: $6,000. Assume that the opportunity cost is 10%. Should the borrower refinance
there is a house on sale for $800,000. You believe you can finance the home for $500,000 for 20 years at a 2% interest rate. What would the monthly principle and interest payment be for the acquird loan? Calculate using the PV funtion in excel.
Suppose that you take out a 40-year $175000 mortgage with an APR of 6%. You make payments for 3 years and then you consider refinancing the original loan. The new loan would have a term of 15 years, have and APR of 5.7% and be in the amount of the unpaid balance on the original loan. The administrative cost of taking out the second loan would be $1700. What are the monthly payments on the original loan? What would the monthly payment of the second loan be? What would the total amount you would pay if you continued with the original 40-year loan without refinancing? What would the total amount would you pay with the refinancing?
Suppose you want to purchase a home for $425,000 with a 30-year mortgage at 5.74% interest. Suppose also that you can put down 30%. What are the monthly payments? (Round your answer to the nearest cent.)$ What is the total amount paid for principal and interest together? (Round your answer to the nearest cent.)$ What is the amount saved if this home is financed for 15 years instead of for 30 years? (Round your answer to the nearest cent.)$
You want to buy a $202,000 home. You plan to pay 10% as a down payment, and take out a 30 year loan for the rest. a) How much is the loan amount going to be? $ 181800 b) What will your monthly payments be if the interest rate is 6%? 1089.98 C) What will your monthly payments be if the interest rate is 7%? Submit Question
Suppose you purchase a house for $200,000.00 by getting a mortgage for $180,000.00 and paying a $20,000.00 down payment. (i). If you get a 30-year mortgage with a 7% interest rate p.a. compounded quarterly, what are the quarterly payments? (ii). What would the loan balance be at the end of the first year?