An investor has $78,000 to invest in a $334,000 property. He can obtain either Alternative 1: A $256,000 loan at 9.7 percent for 20 years or Alternative 2: A $198,000 loan at 9 percent for 20 years and a second mortgage for $58,000 at 13 percent for 20 years. All loans require monthly payments and are fully amortizing.
Required:
a. Which alternative should the borrower choose, assuming he will own the property for the full loan term?
b. Which alternative should the borrower choose if the borrower plans to own the property only five years?

Question

12-08-2024
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An investor has $78,000 to invest in a $334,000 property. He can obtain either Alternative 1: A $256,000 loan at 9.7 percent for 20 years or Alternative 2: A $198,000 loan at 9 percent for 20 years and a second mortgage for $58,000 at 13 percent for 20 years. All loans require monthly payments and are fully amortizing.
Required:
a. Which alternative should the borrower choose, assuming he will own the property for the full loan term?
b. Which alternative should the borrower choose if the borrower plans to own the property only five years?

Sagot :

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