How does the combination of the lower interest rate and larger allocation in Option 2 's Part A, along with the smaller and slightly higher interest rate in Part B, affect the overall total payment compared to Option 1 ?
Answer
A
Increases the total payment slightly, as the smaller loan in Part B carries a higher interest rate that offsets the benefit of the lower rate in Part A.
B
Has no significant impact, since the term length and total loan amount are identical for both options.
C
Has minimal impact on the total payment because the differences in interest rates and loan allocations between the two parts nearly balance each other out.
D
Reduces the total payment overall, since a greater portion of the total loan is financed at a lower interest rate, lowering the weighted average cost of borrowing.