A borrower is purchasing a property for $200,000 and can choose between two possible loan alternatives. Loan A is a 90% loan for 25 years at 8% interest and 2 points and Loan B is a 95% loan for 25 years at 8.75% interest and 1 point.

a. Assume the loans will be held to maturity, what is the incremental cost of borrowing the extra money?

b. Assume that the loans will be repaid in 5 years. What is the incremental cost of borrowing the extra money?

c. Rework parts (a) and (b) assuming the lender is charging 3 points on Loan A and 2 point on Loan B. What is the incremental cost of borrowing?

d. Assume Loan B now has a maturity of 20 years. What is the incremental cost of borrowing? Both loans held to maturity with no points charged

*show step by step calculations