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? c1. Which alternative should the borrower choose, assuming he will own the property for the full loan term and the second mortgage has a 10-year term? c2. Which alternative should the borrower choose, assuming that the borrower plans to own the property only for five years and the second mortgage has a 10-year term?

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Answer rating: 100% (QA)

Choosing the Best Loan Option While I cant definitively choose the best option without knowing the borrowers priorities and risk tolerance I can guide ... View the full answer