Ayura is offered mortgage rates of 3.13% on a 15-year and 5.70% on a 30-year. She...

Ayura is offered mortgage rates of 3.13% on a 15-year and 5.70% on a 30-year. She is able to make either payment and is buying a house with an initial loan balance of $189,000. Her lender is offering 2.5 discount points and she will pay $5,700 is third party expenses. She is able to earn 9.8% investing in the S&P 500. Answer each of the following:

a. What is her monthly payment for each loan?

b. What is the lender's yield on each loan?

c. What is the effective borrowing cost of each loan?

d. Based on present value computations which loan is a better option for her?

Expert Solution

(a) Computation of Monthly payment for each loan

(b) Calculation of lender's yield on each loan

(c) Calculation of effective borrowing cost for each loan

(d) Computation of present value of loan repayments under each option

Conclusion - 3.13% 15 year loan is a cheaper option.

jeff jeffy answered 1 year ago

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