# Question: A facility for a production plant can be purchased for

A facility for a production plant can be purchased for 155,000 with a down payment of 25,000. Consider the following two options

(1) Option 1; getting a new standard mortgage with a 7.5% APR and a 30-year term.

(2) Option 2; Assuming the seller's old mortgage which has an interest rate of 5.5% APR a remaining term of 25 years ( the original term was 30 years) a remaining balance of 97,218 and payments of 597 per month. You can obtain a second or the remaining balance (32,782) from your credit at 9% APR with a 10 year repayment period?

i. What is the effective interest rate of the combined mortgage?

ii. Compute the monthly payments for each option over the life of the mortgage?

iii. Compute the total interest payment for each option?

iv. What interest rate would make the two options equivalent?

(1) Option 1; getting a new standard mortgage with a 7.5% APR and a 30-year term.

(2) Option 2; Assuming the seller's old mortgage which has an interest rate of 5.5% APR a remaining term of 25 years ( the original term was 30 years) a remaining balance of 97,218 and payments of 597 per month. You can obtain a second or the remaining balance (32,782) from your credit at 9% APR with a 10 year repayment period?

i. What is the effective interest rate of the combined mortgage?

ii. Compute the monthly payments for each option over the life of the mortgage?

iii. Compute the total interest payment for each option?

iv. What interest rate would make the two options equivalent?

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