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You are choosing between two mortgage options for a $1,000,000 property. The first option is a 60% LTV mortgage at an interest rate of 7%.
You are choosing between two mortgage options for a $1,000,000 property. The first option is a 60% LTV mortgage at an interest rate of 7%. The payment on this mortgage is calculated as if it were a 30 year mortgage, but the mortgage balance is due in 10 years. This loan also charges a 1% origination fee. The second option consists of two loans combined together. The primary loan (first mortgage) is a 50% LTV loan at an interest rate of 6.5%. This loan is an Interest Only loan due in 10 years and the loan charges a 1% origination fee. The secondary loan for this option is a 10% LTV loan at an interest rate of 9\%. This loan is fully amortizing and is also due in 10 years and charges a 2% origination fee. What is the effective rate of the second option over 10 years? 7.8243% 8.2415% 6.954% 7.1593\%
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