Ann is looking for a fully amortizing 30 year Fixed Rate Mortgage with monthly payments for...

Ann is looking for a fully amortizing 30 year Fixed Rate Mortgage with monthly payments for $4,500,000.

Mortgage A has a 4.38% interest rate and requires Ann to pay 1.5 points upfront.

Mortgage B has a 6% interest rate and requires Ann to pay zero fees upfront.

Assuming Ann makes payments for 2 years before she sells the house and pays the bank the

the bank the balance, which mortgage has the lowest cost of borrowing (lowest annualized IRR)

Solutions

Expert Solution

Annualized cost of borrowing of Mortgage A= 5.18371%

Annualized cost of borrowing of Mortgage B= 6.00%

Details of calculation as below:

As above, Mortgage A has lowest cost of borrowing (lowest annualized IRR).

jeff jeffy answered 2 years ago

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