Question
Jack and Jill have bought a house for $600,000, and are checking out two mortgage loans: - Loan 1: LTV = 80% fully amortizing 30-year
Jack and Jill have bought a house for $600,000, and are checking out two mortgage loans:
- Loan 1: LTV = 80% fully amortizing 30-year term with end of month payments. Interest Rate = 7.80%. This loan has 2 points to be paid upfront. It has 1% prepayment penalty if the loan is terminated sooner than 10 years.
- Loan 2: LTV = 90% fully amortizing 25-year term with end of month payments. Interest Rate = 8.40% This loan has 2 points to be paid upfront. It has 1% prepayment penalty if the loan is terminated sooner than 10 years.
A. If Jack and Jill live in the house for 30 years, what is their incremental cost of borrowing over their thirty years of home ownership?
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