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1. You want to buy a house using mortgage Local lenders are offering the following terms for 30-year, monthly amortizing fixed rate mortgages. Contract

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1. You want to buy a house using mortgage Local lenders are offering the following terms for 30-year, monthly amortizing fixed rate mortgages. Contract Rate Closing Costs Prepayment penalty 825% 2.75 3% 8.50% 2.00 1.5% 8.75% 1.00 1% 1. If you hold the mortgage to maturity, which contract do you prefer? 2. Assume a holding period of five years and NO prepayment Which contract do you prefer now? 3. Assume a holding period of ten years and NO prepayment Which contract do you prefer now? 4. Assume that the pre-payment penalty is applied. Which contract do you prefer now, considering a 5 year holding period?

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