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A home purchaser need to borrow $500,000 to finance their new home. The buyer believes...

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Finance

A home purchaser need to borrow $500,000 to finance their new home. The buyer believes they will live in the house for approximately 4 years. The buyer is offered two mortgage options. The first loan is at a rate of 3% with the payment of $103 in points. The second loan is at a rate of 2.75% with the payment of $6095 in points. Both loans are 30 year fully amortizing loans with monthly payments. Based on the work so far, which loan should the purchaser choose and why? Choose the best answer.

Group of answer choices

The first loan if the borrower is reasonably sure the property will be held for 4 years or less, and the borrower can afford the higher monthly payment.

Always the second loan, it has the lower payment.

Always the first loan, it has the lower effective rate.

The second loan if the property will be held for 30 years, or a similarly long term.

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