to be ab

5) You are looking to buy a $1 million home and you would like to put $100,000 down and borrow the rest. You have two offers from competing banks. The first bank offers you a $900,000 first mortgage, with a rate of 3.75%, 30 year amortization and 2% origination fee. The second offer consists of an $800,000 mortgage at 3%, 30 year amortization, with 1% origination fee and a home equity loan of $100,000 at a rate of 7.5%, 30 year amortization, 2% origination fee. Which offer would you take? Hint: Take the offer with the lowest effective cost of borrowing. 6) What is the marginal cost of borrowing $900,000 at 5% rate with 25 year amortization, when you have another offer on the table at $800,000 with a 3% rate and 25 year amortization? 7) Given the information in question 5) above and based on the preferable offer, how much money would the bank expect you to make if annual taxes are 2% of the house price and annual hazard insurance is 0.3% of the price. Furthermore you have $2,000 in monthly revolving loan payments, $750 per month for car payments and $1,000 a month for credit card payments. The bank uses a front ratio of 28% and a back ratio of 43%