Question: Additional Concepts, Analysis and applications Comparison of two loans with different terms Incremental Borrowing costs Example Assume a borrower is purchasing a property for USD

Additional Concepts, Analysis and applications Comparison of two loans with different

Additional Concepts, Analysis and applications Comparison of two loans with different terms Incremental Borrowing costs Example Assume a borrower is purchasing a property for USD 100,000 and faces two possible loan alternatives. A lender is willing to make an 80% first mortgage loan, or USD 80,000, for 25 years at 12% interest. The same lender is willing to lend 90% , or USD 90,000, for 25 years at 13%. Both loans will have a fixed interest rates and CPM. How should the borrower compare these two alternatives

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