(Solved):A borrower is purchasing a property for $180,000 and can choose between two possible loan…

 

Question

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?

a.13.66%

b.12.01%

c.13.50%

d.14.34%

 

EXPERT ANSWER

The closest answer is b.

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