Hi, Can anyone help me with this question?
Mr and Mrs Smith approach their building society for a mortgage of £100,000 to put towards the purchase of their new home. The building society, offer them two choices:
(a) A repayment mortgage with an interest rate of 12% p.a. compounded annually.
(b) Endowment mortgage with an interest rate of 12% p.a. compounded annually on the loan and an Endowment scheme with a guaranteed maturity value of at least £100,000 with a growth rate of 10% p.a.
In both cases, annual compounding is undertaken by the building society over 20 years. Which option has the lowest cost to Mr and Mrs Smith?