## [answered] A house price of \$100,000 can be financed with two loans be

A house price of \$100,000 can be financed with two loans below with monthly payments. The total origination cost associated with these two loans is \$3000.

 Loan Amount Term (years) Interest Rate 1st Loan \$80,000 30 5% 2nd Loan \$10,000 30 7%

Alternatively, the borrower can borrow one loan in the amount of \$90,000 with monthly payments and origination cost of \$2,000. What should the interest rate be on the loan of \$90,000so that the borrower will be indifferent between these two choices?

House price \$100000

Origination cost \$3000

Loan 1

Loan amount \$80000

Term 30 years

Interest rate 5 % Loan 2

Loan amount \$10000

Term 30 years

Interest rate 7 % Alternative

Borrow 1 loan...

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