Assume you wish to purchase a property for $400,000 and you are evaluating two mortgage choices. You are only able to afford a 10% downpayment, so you have the following options. The first option is a 4.75% fully amortizing, monthly payment, fixed rate loan for 30 years with $2000 in origination fees and no points. This loan is for 90% of the purchase price.

Alternatively, you can borrow 80% of the purchase price at a rate of 3.875%, with $4000 in closing costs. In order to cover the remaining 10%, you will need to take out a 2nd mortgage with an interest rate of 6.5%, and additional closing costs of $2000. The second mortgage is interest only for the first 5 years, and becomes fully amortizing after that. Both loans are for 30 years, and have fixed rates.

A. What is the payment on the first loan?

B. What is the effective rate on the first loan if it is held for the entire 30 years?

C. What is the payment on the 80% loan that is the first part of the second loan package if it is held for the entire 30 years?

D. What is the payment on the 10% loan that is the second part of the second loan package if it is held for the entire 30 years?

E. What is the effective rate on the entire second loan package if it is held for the entire 30 years?