Mortgage option and the incremental cost of borrowing

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Reference no: EM13836199

An investor would like to purchase a $2,000,000 new apartment house and has two financing options under consideration:

Option 1 includes a 70% loan to value mortgage for 15 years at 6.5% interest and 3% closing costs.

Option 2 includes an 80% loan to value mortgage for 15 years at 7.5% interest and 4% closing costs.

Compute the APR for each mortgage option and the incremental cost of borrowing the additional amount if option 2 is selected.

Reference no: EM13836199

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