Problem $6-1$

A borrower can obtain an $80$ percent loan with an $8$ percent interest rate and monthly payments. The loan is to be fully amortized over $25$ years. Alternatively, he could obtain a $90$ percent loan at an $8\mathrm{.}5$ percent rate with the same loan term. The borrower plans to own the property for the entire loan term.

Required:

What is the incremental cost of borrowing the additional funds? $($Hint: The dollar amount of the loan does not affect the answer.$)$

What is the incremental cost of borrowing the additional funds if $2$ points were charged on the $90$ percent loan?

What is the incremental cost of borrowing the additional funds if $2$ points were charged on the $90$ percent loan and the borrower planned to own the property for only five years?