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Which loan would be the better choice

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Question - A borrower is faced with choosing between two loans. Loan A is available for $100,000 at 10% interest for 30 years, and 6 discount points.  Loan B would be made for the same amount, but for 11% interest for 30 years, and 2 discount points. Neither loan has a prepayment penalty.

a. If the loan is to be repaid after 20 years, which loan would be the better choice (which loan has the lower cost of borrowing)?

b. If the loan is to be repaid after 8 years, which loan would be the better choice (which loan has the lower cost of borrowing)?

Reference no: EM132890865

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