Question
30) a) You want to purchase a house and you are offered 2 loans by different lenders. Lender 1 offers you a 30-year fixed rate
30) a) You want to purchase a house and you are offered 2 loans by different lenders. Lender 1 offers you a 30-year fixed rate mortgage loan with 3 discount points and an annual interest rate of 5.2%. Lender 2 offers you a 30-year fixed rate mortgage loan with no discount points and an annual interest rate of 5.6%. Estimate the effective borrowing cost (EBC) of both loans and select the one that is more convenient for you. Assume that you will live in this location for 30 years.
b) Suppose that instead of staying in this property for 30 years you plan to live in it for only 3 years and then sell the property after that. Using the same information previously described with the exception of the tenure length, estimate the EBC of each loan under this new scenario. Which loan do you prefer?
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