Problem $6-1$

A borrower can obtain an $80$ percent loan with an $8$ percent interest rate and monthly payments. The loan is to be fully amortized over $25$ years. Alternatively, he could obtain a $90$ percent loan at an $8\mathrm{.}5$ percent rate with the same loan term. The borrower plans to own the property for the entire loan term.

Required:

a$.$ What is the incremental cost of borrowing the additional funds? $($Hint$.$ The dollar amount of the loan does not affect the answer.$)$

b$.$ What is the incremental cost of borrowing the additional funds if $2$ points were charged on the $90$ percent loan?

c$.$ What is the incremental cost of borrowing the additional funds if the borrower planned to own the property for only five years?

Complete this question by entering your answers in the tabs below.

Required $A$

Required B

Required C

What is the incremental cost of borrowing the additional funds if $2$ points were charged on the $90$ percent loan?

Note: Do not round intermediate calculations. Round your answer to $2$ decimal places.

Incremental cost of borrowing