1. You are going to use a mortgage to buy a house. This mortgage will have an initial balance of $250,000. You go online to a bank and they make two offers to you: You can get a 3.75% loan for 30 years with no points, or You can get a 3.50% loan for 30 years with 1.5 points (you have enough cash to cover the points at closing.)

a. If you anticipate staying in the house for 30 years, What would be the effective interest rate on the loan with points?

2. You are going to use a mortgage to buy a house. This mortgage will have an initial balance of $250,000. You go online to a bank and they make two offers to you:

You can get a 3.75% loan for 30 years with no points, or You can get a 3.50% loan for 30 years with 1.5 points (you have enough cash to cover the points at closing.)

a. If you anticipate staying in the house for 30 years, What would be the effective interest rate on the loan without points?

3. You are going to use a mortgage to buy a house. This mortgage will have an initial balance of $250,000. You go online to a bank and they make two offers to you:

You can get a 3.75% loan for 30 years with no points, or You can get a 3.50% loan for 30 years with 1.5 points (you have enough cash to cover the points at closing.)

b. If you anticipate staying in the house for 15 years, what would be the effective interest rate on the loan with points?

4. You are going to use a mortgage to buy a house. This mortgage will have an initial balance of $250,000. You go online to a bank and they make two offers to you: You can get a 3.75% loan for 30 years with no points, or You can get a 3.50% loan for 30 years with 1.5 points (you have enough cash to cover the points at closing.)

b. If you anticipate staying in the house for 15 years, what would be the effective interest rate on the loan without points?

5. You are going to use a mortgage to buy a house. This mortgage will have an initial balance of $250,000. You go online to a bank and they make two offers to you: You can get a 3.75% loan for 30 years with no points, or You can get a 3.50% loan for 30 years with 1.5 points (you have enough cash to cover the points at closing.)

c. If you anticipate staying in the house for 5 years, what would be the effective interest rate on the loan with points?

6. You are going to use a mortgage to buy a house. This mortgage will have an initial balance of $250,000. You go online to a bank and they make two offers to you:

You can get a 3.75% loan for 30 years with no points, or You can get a 3.50% loan for 30 years with 1.5 points (you have enough cash to cover the points at closing.)

c. If you anticipate staying in the house for 5 years, what would be the effective interest rate on the loan without points?

7. You are going to buy a house for $400,000. You have enough cash that you can use either an 80% or a 90% LTV mortgage. You talk to your lender and are given the following options:

a. You can get an 80% loan at 3.5% for 30 years b. You can get a 90% loan for 4% for 30 years.

What is the incremental cost of financing the marginal 10% if you take the second loan, assuming that you will stay in the loan for all 30 years?

8. You shop around a bit and find a company that will give you a second mortgage on the marginal amount at 7%.

So, this would mean that you would take out the 80% loan at 3.5% for 30 years and then also an additional 10% LTV second loan at 7%, also for 30 years.

a. Assuming you kept both loans until maturity, what would be the effective cost of your total financing over the 30 years?