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6. Consider the two loan financing alternatives: Home Value = $180,000 Two Financing Alternatives #1: 70% Loan to Value (LTV), 7.5% Interest Rate, 30 Years

6. Consider the two loan financing alternatives:

Home Value = $180,000

  • Two Financing Alternatives
    1. #1: 70% Loan to Value (LTV), 7.5% Interest Rate, 30 Years
    2. #2: 80% Loan to Value (LTV), 8% Interest Rate, 30 Years

  1. What are the monthly payments with alternatives 1 and 2?

  1. What is the incremental borrowing cost for the additional amount borrowed through alternative 2 (i.e., the loan with the higher LTV)?

  1. Suppose you expect to relocate after 11 years, but you do not have the option of a second mortgage. What is the incremental borrowing cost for loan 2?

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