You are buying a $350,000 home and are deciding between two fixed rate mortgage options. The 80% LTV option has an interest rate of 6% over 30 years. The 90% LTV option has an interest rate of 6.5% over 30 years with 2 discount points.

• What is the incremental borrowing cost when choosing the 90% LTV option over the 80% LTV option?

• Why is the effective borrowing cost higher for the 90% LTV option?