You are buying a house and will borrow $225,000 on a 30-year fixed rate mortgage

Question

You are buying a house and will borrow $225,000 on a 30-year fixed rate mortgage with monthly payments to finance the purchase. Your loan officer has offered you a mortgage with an APR of 4.55 percent. Alternatively, she tells you that you can “buy down” the interest rate to 4.35 percent if you pay points upfront on the loan. A point on a loan is 1 percent (one percentage point) of the loan value. What are the most points you would be willing to pay to buy down the interest rate? (Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.164.) Maximum points ___________

Explanation / Answer

Ans;

At 4.55 % total interest on the loan is $187,825.02

At 4.35% total interest is $ 178,227.55

= 187,825 - 178,227

= 9,597.4

So maximum benefit at lower interest rate is $ 9,597.

Enter Values Loan Summary Loan amount 225000.00 Scheduled Payment 1146.74 Annual interest 4.55 % Scheduled Number of Payments 360 Loan period in months 360 Actual Number of Payments 360 Moratorium in months 0 Total Early Payments 0.00 Date of loan 1-Jan-2016 Total Interest 187825.02 Optional extra payments Lender Name: PmtNo. Payment Date Beginning Balance Scheduled Payment Extra Payment Total Payment Principal Interest Ending Balance 1 01-Feb-16 225000.00 1146.74 0.00 1146.74 293.61 853.13 224706.39 2 01-Mar-16 224706.39 1146.74 0.00 1146.74 294.72 852.01 224411.66 3 01-Apr-16 224411.66 1146.74 0.00 1146.74 295.84 850.89 224115.82

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