A property costs $100,000. A borrower can obtain an 80% loanwith an 8% interest rate and monthly payments. The loan is to befully amortized over 25 years. Alternatively he could obtain a 90%loan at an 8.5% interest rate with the same loan term. (annualizepercentages)
A. The borrower plans to own the property for the entire loanterm. What is the incremental cost of borrowing the additionalfunds?
B. How would your answer change if two points were charged onthe 90% loan?
C. How would your answer to (b) change if the borrower plannedto own the property for only five years?
