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  3. 2. a prospective borrower is offered a $500,000 fi

2. A prospective borrower is offered a $500,000 first mortgage loan with interest at 8%...

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Accounting

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2. A prospective borrower is offered a $500,000 first mortgage loan with interest at 8% per annum. Monthly payments will be required to amortize the loan over 25 years. Two alternatives are offered: a. A five-year loan with a 1% front-end fee b. A seven-year loan with a 1.5% front-end fee Required (1) Which loan alternative carries the lower pretax effective interest rate, assuming they run full term? (2) Which loan alternative carries the lower pretax effective rate if they are to be retired through refinancing after three years (assume there is no prepayment penalty)? (3) If the borrower intends to let the loan run full term, then refinance with another mortgage loan equal to the remaining balance, what consideration should be factored into the loan choice, other than the effective interest rate

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