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Ambrose is buying a $100,000 property and can obtain an 80 percent loan with an 8 percent interest rate and monthly payments. The loan is
- Ambrose is buying a $100,000 property and can obtain an 80 percent loan with an 8 percent interest rate and monthly payments. The loan is to be fully amortized over 25 years. Alternatively, he could obtain a 90 percent loan at an 8.5 percent rate with the same loan term. Ambrose plans to own the property for the entire loan term.
- What is the incremental cost of borrowing the additional funds? (Hint: The dollar amount of the loan does not affect the answer.)
- How would your answer change if 2 points were charged on the 90 percent loan?
- Would your answer to part (b) change if the borrower planned to own the property for only five years?
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