The following mortgages are availablr to Mr. & Mrs. Jones to finance the purchase of their new home. Which mortgage do you reccommend based upon APR?

Purchase Price $250,000

New Mortgage Amount $200,000

Compute the APR for options A, B, and C? Which option do you reccommend? Why?

SHOW YOUR WORK

a. A 30 year fixed rate mortgage, rate 4.75%; closing costs $3,500.

b. A 15 year fixed rate mortgage, rate 4.25%; closing costs $3,000

c. A 15 year fixed rate mortgage, rate 4%; closing costs $4,500

d. Option preferred?___________

Explain why.

e. Now assuming that Mr. and Mrs. Jones prefer the 30 year mortgage because of the lower monthly payments, what is the ARP and incremental cost of borrowing 90% loan value ($225,000) at 5.75% with closing costs of $6,500 when compared to (a) above?