1. A borrower can obtain an 80% loan with an 8% interest rate and monthly payments. THe loan is fully amortized over 25 years. Alternatively, he could obtain a 90% loan at an 8.5 rate with the same loan term. The borrower plans to own the property for the entire loan.

a)What is the incremental cost of borrowing the additional funds?

b) how would your answer change if 2 points were charged on the 90 percent loan?

c) Would your answer to part (b) change if the borrower planned to own the property for only 5 years?