You are taking out a fully amortizing loan for $2,000,000 over 30 years.You can choose between a loan at 7% with 3 points and a loan at 7.5% with no points.

1. If you plan to sell the property after 5 years, which loan will give you the lower effective borrowing cost?
2. Does your answer change if the loan without points has a prepayment penalty of 2% of the outstanding balance if repaid within the first 7 years?