Consider the two loan financing alternatives:

Home Value = $170,000

Two Financing Alternatives

#1: 70% Loan to Value (LTV), 7.5% Interest Rate, 30 Years

#2: 80% Loan to Value (LTV), 8% Interest Rate, 30 Years

a. What is the loan amount of each alternative?

b. What is the monthly payment with each alternative?

c. What is the incremental borrowing cost for the additional amount borrowed through alternative 2 (i.e., the loan with the higher LTV)?

d. Suppose you expect to relocate after 11 years (and pay off the mortgage at that time). In this situation, what is the incremental borrowing cost for loan 2?