You plan to purchase a house for $195,000 using a 20-year mortgage obtained from your...
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You plan to purchase a house for $195,000 using a 20-year mortgage obtained from your local bank. You will make a down payment of 20 percent of the purchase price. You will not pay off the mortgage early. Your bank offers you the following two options: Option 1: Mortgage rate of 5.35 percent and 1 discount point. Option 2: Mortgage rate of 5.10 percent and 2 discount points. Calculate the number of months you need to keep the mortgage loan such that you are indifferent between the two options, taking into consideration of TVM in your analysis. b. Consider a $250,000 30-year Option ARM (i.e., Pick-n-Pay mortgage) that offers a minimum payment option with an interest rate of 1% for the first year. The prevailing interest rate on a comparable 30 -year mortgage loan is 3%. Calculate the outstanding loan balance for EACH of the first THREE months of this Option ARM
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