a) to buy a house a borrower can obtain a $605,000 loan amortised over 30 years at 3.56% annual interest with monthly payments. Alternatively, she could obtain a $745,000 loan at 5.15% annual interest with the same maturity and payment frequency. Both loans are fully amortising with constant payments. The house would be held for 7 years and the loan repaid. What is the incremental cost of borrowing the additional funds? Enter your answer rounded to two decimal places without the % sign (e.g. 2.22% is 2.22)

b) You have saved a 5% deposit to buy a $1,250,000 house and have been approved for the Launchpad lending scheme. The Launchpad will consist of two loans. The first loan will make up 80% of the value of the house at a fixed interest rate of 3.35%. This loan will be a 25-year loan and during the first five years the payments are interest-only. The second loan will make up 15% of the value of the house at a fixed interest rate of 9.95%. This loan will be paid off fully in 5 years (interest and principal). Both loans will have monthly payments. Calculate the equivalent interest rate of the two loans combined which make up 95% of the value of the house during the first five years. Enter your answer rounded to two decimal places without the percentage sign (e.g. 9.53% is entered as 9.53).

Answer rating: 100% (QA)

a To calculate the incremental cost of borrowing the additional funds we need to compare the total costs of the two loan options over the 7year period Loan Option 1 Loan Amount 605000 Interest Rate 35... View the full answer