6 1. You are facing a choice between borrowing money under two loan structures. Structure 1 is a fixed rate, fully- 7 amortizing, constant payment first mortgage loan for $400,000 with a 30-year maturity at 7% interest. Structure 2 8 involves two loans: a fixed rate, fully amortizing, constant payment first mortgage loan for $300,000 with a 30-year 9 maturity at 6.5% and a fixed rate, fully amortizing, constant payment second mortgage loan for $100,000 at 7.4% 10 interest. Each of the three loans requires 2 points at origination. Answer the following 2 questions. 12 13 a. What is the effective borrowing cost under Structure 1 if you expect to prepay the loan at the end of year 5? Effective Borrowing Cost 16 Loan Amount 17 Years 18 Periods Per Year 19 Interest Rate 20 Points at Origination 21 Prepayment Month 22 Monthly Payment 23 Balance at Prepayment