You decide to buy a house in Amherst valued at $250,000 and need to borrow the entire amount to finance your house. After shopping around for a mortgage loan, you find that the following two deals from the Mortgage One Company are very attractive:

(1) A 15-year fixed rate mortgage with no point and an APR of 5%, compounded monthly.

(2) A 15-year fixed rate mortgage with two points and an APR of 4.5%, compounded monthly. A point simply represents 1% of the loan amount, and it is the front charge by lenders to reduce the loan interest rate. The money you pay for points is tax deductible. However, the Mortgage One Company does not allow you to build the point money into the mortgage, so you need to pay the point separately. For simplicity, lets assume that you have this amount of money in your bank account.

The closing costs (not including the points) for the two loans are identical.

According to the law, the interests on your mortgage payments are tax deductible. In fact, at the end of each year, your lender will simply add up your 12-month interest payments (without considering the time value of money) and forward the mortgage statement to you and the IRS for tax filing purposes. Then you file your tax form according to your income tax rate of 28%. Assume that you pay your mortgage payments at the end of each month and you pay taxes at the end of each year.

B. . Suppose that you intend to live in the house for 5 years. After considering all the factors like tax savings, points, monthly payments, etc., which loan will you choose?Discuss in detail.