2. [6 pts] A borrower is faced with choosing between two fully amortizing level-payment loans. Loan...

2. [6 pts] A borrower is faced with choosing between two fully amortizing level-payment loans. Loan A is available for $75,000 at 10% MEY for 30 years, with 6 points included in the closing costs. Loan B would be made for the same amount, but at 11% MEY for 30 years, with 2 points included in the closing costs. Neither loan defaults/is curtailed. a. [4] If the loan is to be repaid after 15 years, which is the better choice? b. [2] If the loan is repaid after 5 years, which is the better choice?

Hint: Use the effective cost of borrowing to make the decision. Show work.

Expert Solution

jeff jeffy answered 2 hours ago

A borrower is faced with choosing between two loans. Loan A is available for $75,000 at...

A borrower is faced with choosing between two loans. Loan A is available for $75,000 at 6.5% interest for 30 years, with 3% loan origination fee. Loan B would be made for the same amount, but for 7% interest for 30 years, with 0.5% loan origination fee. Both loans will be fully amortizing. a) If the loan is repaid after 20 years, which loan would be the better choice? b) If the loan is repaid after 5 years, which loan...

SHOW CLEAR WORK ON EXCEL A borrower is faced with choosing between two loans. Loan A...

SHOW CLEAR WORK ON EXCEL A borrower is faced with choosing between two loans. Loan A is available for $75,000 at 6 percent interest for 30 years, with 6 points to be included in closing costs. Loan B would be made for the same amount, but for 7 percent interest for 30 years, with 2 points to be included in the closing costs. Both loans will be fully amortizing. a. If the loan is repaid after 20 years, which loan...

You are considering two possible fixed-rate level payment loans, Loan A and Loan B. Loan A...

You are considering two possible fixed-rate level payment loans, Loan A and Loan B. Loan A has the following information: loan amount is $300,000, 6.6% contract rate, 30 year maturity with monthly payments, it has a 1.5% upfront fee and a mortgage insurance fee of 1%. Loan B has the following information: loan amount is $300,000, 6.35% contract rate, 30 year maturity with monthly payments, it has a 4% upfront fee and a mortgage insurance fee of 1%. Calculate the...

What are the major differences between the four CPM loans: Fully Amortizing: Partially Amortizing: Interest Only:...

What are the major differences between the four CPM loans: Fully Amortizing: Partially Amortizing: Interest Only: Negative Amortizing:

SHOW CLEAR WORK ON EXCEL A fully amortizing mortgage loan is made for $100,000 at 6...

SHOW CLEAR WORK ON EXCEL A fully amortizing mortgage loan is made for $100,000 at 6 percent interest for 30 years. Determine payments for each of the periods a–d below if interest is accured: a. Monthly. b. Quarterly. c. Annually. d. Weekly.

A fully amortizing mortgage loan is made for $200,000 at 6 percent interest for 30 years....

A fully amortizing mortgage loan is made for $200,000 at 6 percent interest for 30 years. Payments are to be made monthly. (Ignore origination fee and other fees). a. Using Excel, construct fully amortizing mortgage loan table including beginning balance, payment, interest, principal, and ending balance. (Please check your ending balance by using PV function in Excel) b. Interest and principal payments during month 1. c. Total Principal and total interest paid over 30 years. d. The outstanding loan balance...

Given the following information on a 30-year fixed-payment fully amortizing loan, determine the owner’s equity in...

Given the following information on a 30-year fixed-payment fully amortizing loan, determine the owner’s equity in the property after seven years if the market value of the property is $240,000 at the end of year 7: rate: 7%; monthly payment: $1,200.

A borrower has the following two financing options: 80% LTV fully amortizing CPM for 25 years...

A borrower has the following two financing options: 80% LTV fully amortizing CPM for 25 years at 8% or 90% LTV CPM loan at 9% with similar terms. The borrower is not planning to prepay the loan. a. Compute the incremental cost of borrowing the additional 10% (any property value should works). b. What is the incremental cost of borrowing the additional 10% if the lender charges 2 discount points additional on the 90% loan? c. Redo (b) assuming the...

You are given two loans, with each loan to be repaid by a single payment in...

You are given two loans, with each loan to be repaid by a single payment in the future. Each payment includes both principal and interest. The first loan is repaid by a 3000 payment at the end of four years. The interest is accrued at an annual nominal rate of discount equal to 5% compounded semiannually. The second loan is repaid by a 4000 payment at the end of five years. The interest is accrued at an annual nominal rate...

Explain the differences between a pure discount loan, an interest-only loan, and a level-payment amortized loan....

Explain the differences between a pure discount loan, an interest-only loan, and a level-payment amortized loan. Explain interest rate risk. What are the three elements in every time value of money calculation?

Question