Problem: You're about to purchase a home and your mortgage broker offers you two options.
Based on the information provided below, which option should you choose? (annual compounding is acceptable)
Option 1 Option 2
Mortage Amount $200,000 Mortage Amount $200,000
Interest rate 7.0% Interest rate 7.5%
Closing Cost $4,500 Closing Cost None
Additional Information (applicable to both options)
- You can invest surplus cash at 6%
- You're planning to refinance the mortgage at the end of the 5th year