You are offered two choices for financing your house, valued at $200,000, as follows: a. A 90 percent LTV fixed-rate 30-year mortgage at 6.00 percent. It will require private mortgage insurance for nine years (until the loan is reduced to 78 percent of value), effectively increasing the payment as if the loan were a 6.75 percent loan for nine years. b. An 80 percent LTV first mortgage, fixed rate, 30 years at 6.00 percent. (No mortgage insurance is required because the loan is 80 percent of value.) A "piggyback" second mortgage for 10 percent of value of the house, with an effective borrowing cost of 8.00 percent, and a maturity of nine years is required too. You expect for the financing to be in place for seven years. If there is no difference in the upfront cost of the two arrangements, which would be the better choice financially? Why?

Answer rating: 100% (QA)

Heres an analysis to compare the two financing options and determine the better choice financially assuming the financing lasts for seven years Option ... View the full answer