The house for the full loan term

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Reference no: EM131950604

A borrower can obtain either a $1,400,000 million dollar loan @6% interest for 30 years OR a $400,000 loan @5% interest for 30 years and a home-equity loan / 2nd mortgage of $1,000,000 @7% interest for 30 years. All loans require monthly payments and are fully amortizing.

1. What is the effective cost of the $400,000 loan @5% interest combined with the $1,000,000 @7% interest, assuming the borrower will be in the house for the full amount of the term?

2. Which alternative should the borrower choose assuming he or she will in the house for the full loan term?

Reference no: EM131950604

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