Question
Bill wants to buy a $800,000 property and has $200,000 that he can invest as the down payment on the property. The remaining $600,000 needs
Bill wants to buy a $800,000 property and has $200,000 that he can invest as the down payment on the property. The remaining $600,000 needs to be financed. Two choices are available. Choice 1: Take a single 30-year mortgage for $600,000 at 9%. Choice 2: Take two mortgages: Mortgage #1 for $400,000 at 8.4% for 30 years Mortgage #2 for $200,000 at 12% for 20 years (not 30 years) All the three mortgages under consideration are fully amortizing constant payment mortgages.
A. Which choice is better if Bill lives in the house for 30 years? Please show your work.
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