When purchasing a $100,000 house, a borrower is comparing two loan alternatives. The first loan is an 80% loan at 4% with monthly payments of $591.75 for 15 years. The second loan is 90% loan at 5% with monthly payments of $526.13 over 25 years. What is the incremental cost of borrowing the extra money assuming the loan will be held for the full term?
When purchasing a $100,000 house, a borrower is comparing two loan alternatives. The first loan is an 80% loan at 4% with monthly payments of $591.75 for 15 years. The second loan is 90% loan at 5% with monthly payments of $526.13 over 25 years. What is the incremental cost of borrowing the extra money assuming the loan will be held for the full term?
Pfin (with Mindtap, 1 Term Printed Access Card) (mindtap Course List)
7th Edition
ISBN:9780357033609
Author:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk
Publisher:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk
Chapter5: Making Automobile And Housing Decisions
Section: Chapter Questions
Problem 8FPE
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![When purchasing a $100,000 house, a borrower is comparing two loan
alternatives. The first loan is an 80% loan at 4% with monthly payments of
$591.75 for 15 years. The second loan is 90% loan at 5% with monthly
payments of $526.13 over 25 years. What is the incremental cost of
borrowing the extra money assuming the loan will be held for the full term?
O 6.50%
O 13.21%
O 7.20%
O 13.70%](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F844895ab-11cc-4ba9-834b-d0c794ae7a0d%2Ffb56dbd8-9b8c-45f7-85d2-dea168f1bf3b%2F5pap8pp_processed.jpeg&w=3840&q=75)
Transcribed Image Text:When purchasing a $100,000 house, a borrower is comparing two loan
alternatives. The first loan is an 80% loan at 4% with monthly payments of
$591.75 for 15 years. The second loan is 90% loan at 5% with monthly
payments of $526.13 over 25 years. What is the incremental cost of
borrowing the extra money assuming the loan will be held for the full term?
O 6.50%
O 13.21%
O 7.20%
O 13.70%
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