A borrower wants to borrow $300,000 to purchase a home. The borrower is seeking fixed...
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A borrower wants to borrow $300,000 to purchase a home. The borrower is seeking fixed rate financing, but has not determined the term of the loan between the following two options: Option 1: 30-year, fixed rate mortgage and has a 4% contract rate, no point, no other closing costs and no prepayment penalty. Option 2: 15-year, fixed rate mortgage and has a 3.8% contract rate, 1 point, no other closing costs and no prepayment penalty. a. What is the monthly payment for each option? b. Assuming the borrowers opportunity cost is 10%, and he wants to move out of the home after 3 years, which option is better for him?
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