You want to buy a house for main residence and have the following four choices of mortgage with monthly payments. Suppose that your marginal tax rate is 25% and the market index will stay 10.5% after year 5. 0 Mortgage Amount Term Discounts Points Initial Contract Interest Rate Costs with Loan Orignation Margin Caps Fixed-rate Mortgage Fixed-rate Mortgage Adjusted-rate Mortgage 3/1 Interest-only ARM $100,000 $100,000 $100,000 $100,000 30 years with monthly PMT 30 years with monthly PMT 30 years with monthly PMT 30 years with monthly PMT 3.51 0 9.75% 8.00% 8.10% 8.00% $5,000 $5,000 $5,000 $5,000 2.25% 2.25% 1% annual, 3.9% lifetime 6% lifetime Market Index End of Year (EOY) 1: 8.6%; EOY 2:9.5%; EOY 3: 10.5%; EOY 4: 11.5%; EOY 5: 10.5% 1. [5 points] If you hold the loan for the entire term, what is the annual effective cost of each mortgage before-tax? 2. [5 points) If you hold the loan for the entire term, what is the annual effective cost of each mortgage after-tax? You want to buy a house for main residence and have the following four choices of mortgage with monthly payments. Suppose that your marginal tax rate is 25% and the market index will stay 10.5% after year 5. 0 Mortgage Amount Term Discounts Points Initial Contract Interest Rate Costs with Loan Orignation Margin Caps Fixed-rate Mortgage Fixed-rate Mortgage Adjusted-rate Mortgage 3/1 Interest-only ARM $100,000 $100,000 $100,000 $100,000 30 years with monthly PMT 30 years with monthly PMT 30 years with monthly PMT 30 years with monthly PMT 3.51 0 9.75% 8.00% 8.10% 8.00% $5,000 $5,000 $5,000 $5,000 2.25% 2.25% 1% annual, 3.9% lifetime 6% lifetime Market Index End of Year (EOY) 1: 8.6%; EOY 2:9.5%; EOY 3: 10.5%; EOY 4: 11.5%; EOY 5: 10.5% 1. [5 points] If you hold the loan for the entire term, what is the annual effective cost of each mortgage before-tax? 2. [5 points) If you hold the loan for the entire term, what is the annual effective cost of each mortgage after-tax