If you choose to Not to buy down the interest rate on the mortgage accepting ins

Question

If you choose to Not to buy down the interest rate on the mortgage accepting instead the original 6.00% interest rate for your 30-year mortgage. How much will your monthly payments be under this mortgage note agreement? (Show all work. Circle your What is the TOTAL amount you will pay over the life of the y mortgage note for the purchase of your home? (Show all work. Circle your answer.) What is the total amount you will pay in INTEREST over the life of the 30-year mortgage note for the purchase of the home? (Show all work. Circle your answer.) You purchase a home for $185,000, putting down $15,000 as a down payment the note/mortgage interest rate you are originally quoted is 6.00% for a 30-year mortgage mote. You have the option from the mortgage broker to buy down the rate at 1 point for 1/4% rate reduction. What will be the new adjusted interest rate you will receive Rafter the buy down) on your 30-year mortgage? (Explain briefly how you found this new adjusted interest rate.) Will you have to purchase mortgage insurance on this home purchase? (Briefly explain your answer.)

Explanation / Answer

1.a) 1 point costs 1% of the mortgage amount.
So, 3 points => 3% x $185,000 = $5,550

1.b) 1 point = ¼% interest rate (As given in question)
So, total interest reduced = ¼% x 3 = 0.75%
New adjusted interest rate = 6% - 0.75% = 5.25%

2.a) Pmt = Lr / (1-(1+r)-t)

The amount you borrow is L, the interest rate per period is r, the number of periods is t, and P is the payment per period.

PMT = [($185,000 x 0.5%) / (1-(1+0.5%)-360)] = $1,109.17

2.b) Total Amount Paid = $1,109.17 x 360 = $399,300.65

2.c) Total Interest Paid = $399,300.65 - $185,000 = $214,300.65

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