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Assume that you have purchased a home and can qualify for a $200,000 loan. You have narrowed your mortgage search to the following two options:
Assume that you have purchased a home and can qualify for a $200,000 loan. You have narrowed your mortgage search to the following two options:
Mortgage A
Loan term: 30 years
Annual interest rate: 6%
Monthly payments
Total up-front financing costs: $11,000
Mortgage B
Loan term: 15 years
Annual interest rate: 5.5%
Monthly payments
Total up-front financing costs: $13,000
Required:
Based on the effective borrowing cost, which loan would you choose? Assume you do not expect to prepay either loan.
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