Question $1$

You want to buy a home for $$549,000,$ with $20\%$ down payment, $30-$year fixed

rate of $7\mathrm{.}25\%$ with no discount points and no origination fee at $80\%$ loan to

value.

Compare it to ARM loans of $\frac{5}{5}(5$ years fixed rate, then adjust once every $5$

years$)$ at $5\mathrm{.}625\%$ rate no points, no origination fee. Set up for $30-$year lerm.

What is the effective borrowing cost of the mortgage if you hold it for $5$ years.

Show all details on how this transaction will work. What does the payments

look like? Which option of mortgage is better?