An investor has $60,000 to invest in a $280,000 property. He can obtain either (option A) a $220,000 loan at 9.5 percent for 20 years; or (option B) a $180,000 loan at 8.75 percent for 20 years and a second mortgage for $40,000 at 13 percent for 20 years. All loans require monthly payments and are fully amortizing. How much more would be the effective cost % if you went forward with option A instead of option B. I.e.. what is "cost% for A - cost % for B"? (Notes: if the cost is less for option A, don't forget the negative sign. Input answer without "%" sign, e.g., 5.75% as 5.75.) Answer: Refer to the same question. Which option is better for the investor? Select one: O a. Option A O O O b. Option B c. Neither d. Either is the same e. It depends on borrower Refer to the same question. How much more would be the effective cost % if you went forward with option A instead of option B if the second mortgage in option B had a 10-year term instead? (Notes: if the cost is less for option A don't forget the negative sign. Input answer without "%" sign, e.g.. 5.75% as 5.75.) Answer:

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Loans

A loan is a term that we are all familiar with. The processing of loans is one of the most important functions of a bank. It keeps our economy stable and facilitates the implementation of monetary policies. Let's take a look at the different forms of loans and get some answers to some common questions.