Imagine that you are considering buying a house in a neighborhood. The house is valued at $675,000. You are planning to stay in the house for 7 years, when it is estimated that you can sell it for $785,000. You also believe that you can invest funds (i.e., your opportunity cost of capital) at a return of 12%. You have been offered three loans, as follows (all loans are monthly): Loan option #1 has an 80% loan-to-value, with a 3.65% interest rate, and matures in 30 years. Loan option #2 has an 85% loan-to-value, with a 4.00% interest rate, a maturity of 25 years, and 1.5 points. Loan option #3 has a 90% loan-to-value, with a 4.25% interest rate, a maturity of 20 years, and 2 points.

1. Which loan should you take? Why? Please show all of your work comparing the three loans.

2. Please explain why you chose the answer in part 1 above. Please be specific and detailed in your explanation of how the loan you chose benefits you more than the other two loans.

Answer rating: 100% (QA)

To determine which loan option is the most favorable we need to compare the total cost of each loan and assess the financial benefits they offer Heres a stepbystep analysis of the three loan options L... View the full answer