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.