A couple is looking to purchase their first home. The house is for sale at $125,000.

They can obtain an 80% LTV with a 7% interest rate and monthly payments. The loan is to be fully amortized over 30 years.

Alternatively, they could obtain a 90% LTV at a 7.5% interest rate amortized over the same term.

What is the incremental cost of borrowing the additional funds?

Assuming the couple took the 80% loan, after fifteen years, the couple has the opportunity to refinance their mortgage
to a new rate of 4% with closing costs for the new loan being $2,000.
What is the incremental cost of refinancing and how long will it take for the couple to recover their costs?