Consider the two financing alternatives below for an $1,300,000 house purchase. Both loans are fully amortizing fixed rate mortgage with monthly payments.

Alternative 1: Alternative 2:

LTV = 90% LTV = 80%

RATE= 7.25% RATE= 6.50%

TERM= 30 years TERM=30 years

A. Calculate the incremental borrowing cost given the following information.  

B. Calculate the incremental borrowing cost for a seven-year holding period.