Your success in business thus far has put you in a position to purchase a home for $500,000 located close to the university you attend. You plan to pay a 20% down payment of $100,000 and borrow the remaining $400,000.

a. Use the annuity formula or PMT function in Excel to verify the monthly payment for each loan.

b. Calculate the actual amount you will receive from each loan after both fees and points.

Compare the loans, assuming you will keep them for 30 years, as follows:

c. Compute the incremental cash flows of the lower rate loan; that is, determine how much more you will pay in fees, and how much you will save on your monthly payment.

d. What is the payback period of the lower rate loan? That is, how many years of lower monthly payments will it take to save an amount equal to the higher fees?

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