Alender offers the greys two alternative loan packages for their $60,000 home equity application. one option is an interest-only loan for 5 years @ 6.5% interest with no points, and the second, a 6.25% interest-only loan for 5 years with 1 point to be paid at closing. which loan will cost the greys less total interest, and by how much?

The Greys will pay less interest if they take the second option: $19,500 - $19,350 = $150

Explanation:

First option will cost the Greys = 6.5% x $60,000 x 5 years = $19,500 in interests

Second option will cost the Greys = (6,25% x $60,000 x 5 years) + ($60,000 x 1%) = $18,750 + $600 = $19,350

The Greys will pay less interest if they take the second option: $19,500 - $19,350 = $150

*One point equals 1% of the total principal

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