A house can be purchased for $155,000, and you have $25,000 cash for a down payment. You are considering the following two financing options:

Option 1. Getting a new standard mortgage with a 7.5% (APR) interest and a 30-year amortization.

Option 2.  Assuming the seller’s old mortgage, which has an interest rate of 5.5% (APR), a remaining amortization of 25 years (the original amortization was 30 years), a remaining balance of $97,218, and payments of $593 per month. You can obtain a second mortgage for the remaining balance ($32,782) from your credit union at 9% (APR) with a 10-year repayment period.

(a) What is the effective interest rate of the combined mortgage?

(b) Compute the monthly payments for each option over the life of the mortgage.

(c) Compute the total interest payment for each option.

(d) What homeowner’s interest rate makes the two financing options equivalent?