Problem 5

You have the following two mortgage choices:

Mortgage Amount Term The payments rises each Discounts Points Costs with Loan Origination Initial Contract Interest Margin Caps Fixed-Rate Mortgage S100,ooo 3 years with annual PMT 0 Sl,ooo 11.00% End ofYear (EOY) 1: 7.0%; Market Index EOY 2:4.5% 2/1 Interest-only $100,00 3 years with annual PMT $1,000 10.00% 2.00% no annual cap; 3% lifetime End ofYear (EOY) 1: 7.0%; EOY 2: 4.5%