When Purchasing a $210,000 House,a Borrower Is Comparing Two Loan

question 16

Multiple Choice

When purchasing a $210,000 house,a borrower is comparing two loan alternatives.The first loan is a 90% loan at 10.5% for 25 years.The second loan is an 85% loan for 9.75% over 15 years.Both have monthly payments and the property is expected to be held over the life of the loan.What is the incremental cost of borrowing the extra money?

• A)20.25%
• B)16.17%
• C)11.36%
• D)12.42%

---

Definitions:

MRP

Marginal Revenue Product, a term in economics that represents the additional revenue generated by employing one more unit of a factor, such as labor or capital.

Investment

The allocation of resources, such as capital or time, in order to generate future profit or income.

Usury Laws

Statutes that set maximum interest rates that can be charged on loans, intended to protect consumers from excessively high rates.

Interest Rates

The cost of borrowing money or the return on investment, typically expressed as a percentage of the principal.