Question: Problem 4 [25 points] You decide to buy a house with price of $500,000. You put 20% down payment and consider a 15-year fixed

Problem 4 [25 points] You decide to buy a house with price

Problem 4 [25 points] You decide to buy a house with price of $500,000. You put 20% down payment and consider a 15-year fixed rate mortgage to pay the remaining balance. The lender offers you three choices of the mortgage with monthly payments: Choice a b c Suppose that the origination cost is $8,000. Questions Rate 7.00% 6.65% 6.50% Points 0.00 0.30 5.00 1. [15 points] If the loan will be outstanding for 15 years, what is the effective cost for each choice? Which choice would you like to make? Why? 2. [10 points]Which mortgage choices are not properly priced? Why?

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