A borrower has the following two financing options: 80% LTVfully amortizing CPM for 25 years at 8% or 90% LTV CPM loan at 9%with similar terms. The borrower is not planning to prepay theloan.
a. Compute the incremental cost of borrowing the additional 10%(any property value should works).
b. What is the incremental cost of borrowing the additional 10%if the lender charges 2 discount points additional on the 90%loan?
c. Redo (b) assuming the borrower prepays the loan after 5years.
