All loans are fully amortizing

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Reference no: EM131875557

A homeowner has lived for 15 years in a home, the value of which has risen to $200,000. The balance on the original mortgage is $100,000 and the monthly payments are $1,100 with 15 years remaining. The homeowner would like to obtain $50,000 in additional financing. A new first mortgage for $150,000 can be obtained at a 12.5% rate, and a second mortgage for $50,000 at a 14% rate with a 15 year term. Alternatively, a wraparound loan for $150,000 can be obtained at a 12% rate and a 15 year term. All loans are fully amortizing. Which alternative should the homeowner choose?

Reference no: EM131875557

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