1. A homeowner could take out a 15-year mortgage at a 3.5% annual rate with 2% points on a $125,000 mortgage amount, or she could finance the purchase with a 15-year mortgage at a 3.85% annual rate (40 points).

1. Which mortgage is a better deal if she holds the mortgage for the entire length? Show the dollar cost/savings.

B. Which mortgage is a better deal if she plans to sell the house in 5 years? Show the dollar cost/savings.

C. What is the effective rate for each mortgage?