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. Fixed-rate Mortgage Fixed-rate Mortgage Adjusted-rate Mortgage 3/1 Interest-only ARM Mortgage Amount $100,000 $100,000 $100,000 $100,000 Term 30 years with monthly PMT 30 years with monthly PMT 30 years with monthly PMT 30 years with monthly PMT Discounts Points 0 3.5 0 0 Initial Contract Interest Rate 9.75% 8.00% 8.10% 8.00% Costs with Loan Orignation $5,000 $5,000 $5,000 $5,000 Margin 2.25% 2.25% Caps 1% annual, 3.9% lifetime 6% lifetime Market Index End of Year (EY) 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. Fixed-rate Mortgage Fixed-rate Mortgage Adjusted-rate Mortgage 3/1 Interest-only ARM Mortgage Amount $100,000 $100,000 $100,000 $100,000 Term 30 years with monthly PMT 30 years with monthly PMT 30 years with monthly PMT 30 years with monthly PMT Discounts Points 0 3.5 0 0 Initial Contract Interest Rate 9.75% 8.00% 8.10% 8.00% Costs with Loan Orignation $5,000 $5,000 $5,000 $5,000 Margin 2.25% 2.25% Caps 1% annual, 3.9% lifetime 6% lifetime Market Index End of Year (EY) 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