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

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Finance

A borrower has the following two financing options: 80% LTVfully amortizing CPM for 25 years at 8% or 90% LTV CPM loan at 9%with similar terms. The borrower is not planning to prepay theloan.

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 borrower prepays the loan after 5years.

Answer & Explanation Solved by verified expert
4.4 Ratings (683 Votes)
Assumed Value of porperty 1000000 Option Loan amount Interest rate Loan period months Monthly payments 80 LTV 80000000 8 300 617453 90 LTV 90000000 9 300 755277 Difference 10000000 137824 The borrower will pay 137824 per month more for 25 years 300 monthly payments on    See Answer
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