You decide to buy a house with price of $450,000. You put 20% down payment and consider a30-year fixed rate mortgage to pay the remaining balance. The lender offers you two choices of the mortgage with monthly payments:

Choice	Mortgage Rate	Points
1	7%	0
2	6.2%	3

Suppose that the origination cost is $6,000 and your marginal tax rate is 25%.

1. If you hold the loan for 30 years, what is the effective cost for each choice after-tax?

2. How about the effective cost for each choice after-tax if the loan will only be outstanding for 5 years (60 months) (i.e. the borrow will pay off the loan at the end of 60months)?