The Hassads are applying for a $90,000 mortgage. They can choose between a 30-year conventional mortgage and a 30-year variable-rate mortgage. The interest rate on a 30-year conventional mortgage is 9.5%. The terms of the variable-rate mortgage are 6.5% interest rate the first year, an annual cap of 1%, and an aggregate cap of 6%. The interest rates and the mortgage payments are adjusted annually. Assume that the interest rates for the variable-rate mortgage increase by the maximum amount each year. Then the monthly mortgage payments for the variable-rate mortgage for years 1– 6 are $568.86, $629.29, $692.02, $756.77, $823.27, and $891.26, respectively.

(a) Knowing that they will be in the house for only 6 years, which mortgage, the conventional mortgage or the variable-rate mortgage, will be the least expensive for that period?

(b) How much will they save by choosing the less expensive mortgage?