Information: You want to buy a house for main residence and have the following four choices of mortgage with monthly payments. Suppose that your marginal tax rate is 25% and the market index will stay 10.5% after year 5.

1) Fixed Rate mortgage - Amount - $100,000, Term - 30 (monthly pmts), Discount point - 0, Initial Contract rate - 9.75%, Origination cost - $5,000

2) Fixed Rate mortgage - Amount - $100,000, Term - 30 (monthly pmts), Discount point - 3.5, Initial Contract rate - 8.00%, Origination cost - $5,000

3) AdjustedRate Mort - Amount - $100,000, Term - 30 (monthly pmts), Discount point - 0, Initial Contract rate - 8.10%, Origination cost - $5,000, Margin - 2.25%, Caps - 1% annual, 3.9% lifetime

4) 3/1 interest only ARM - Amount - $100,000, Term - 30 (monthly pmts), Discount point - 0, Initial Contract rate - 8.00%, Origination cost - $5,000, Margin - 2.25%, Caps - 6% lifetime

MArket index: end of year 1: 8.6% ; 2: 9.5% ; 3: 10.5% ; 4: 11.5% ; 5: 10.5%

Question: If you hold the loan for the entire term, what is the annual effective cost of each mortgage before-tax? - 4 answers

Question: If you hold the loan for the entire term, what is the annual effective cost of each mortgage after-tax?