Ann buys a property that costs $1,000,000.

She finances the purchase with 70% LTV mortgage.

She gets a 20 year IO fixed mortgage at an annual interest rate of 5% with annual compounding and annual payments. Ann must pay 2 points upfront in mortgage closing costs (as a % of the loan amount.) Suppose Ann will sell the property in 3 years, after her 3rd years mortgage payment and pay off the balance when she sells.

Carefully write out the NPV of Anns mortgage as a function of a general discount rate, i: