A 30-Year Fixed-Rate Mortgage Has a Contract Rate of 7

question 3

Multiple Choice

A 30-year fixed-rate mortgage has a contract rate of 7.00% with one point.A 15- year fixed-rate mortgage has a contract rate of 6.25%.If both loans have a 15-year holding period,what amount of points on the 15-year loan will equalize the effective costs of these loans over their holding periods? Assume a loan amount of
$80,000.

• A) the effective costs cannot be equal because of the different loan amortizations
• B) 5.20 points
• C) 5.31 points
• D) 5.56 points
• E) none of the above

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