Which mortgage has the lowest cost of borrowing

Reference no: EM131933160

Question: Ann is looking for a fully amortizing 30 year Fixed Rate Mortgage with monthly payments for $800,000.

Mortgage A has a 4.25% interest rate and requires Ann to pay 1.5 points upfront.

Mortgage B has a 6% interest rate and requires Ann to pay zero fees upfront.

Assuming Ann makes payments for 2 years before she sells the house and pays the bank the balance, which mortgage has the lowest cost of borrowing (ie lowest annualized IRR)? Type 1 for A, type 2 for B.

Reference no: EM131933160

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