You wish to purchase a house for $240,000 and you would like to put 10% down pay

Question

You wish to purchase a house for $240,000 and you would like to put

10% down payment. You can get a 30-year fixed rate mortgage loan at 4.00% Annual rate with

monthly compounding and no points. Your closing fees (abstract, legal, inspections, etc.) are

expected to be $2,500. Your PMI (if applicable) is $100/month for the first 3 years, your

property taxes are $3,600/year and your casualty insurance is $1,800/year. Your lender will

collect the PMI, property tax and casualty insurance as monthly escrow payments along with

your principal and interest payments.

How many months will you need to live in the house for it to be cost effective to have

paid the 2.5 points to reduce the annual interest rate by 0.5% (use simple payback

method)?

a. 140

b. 129

c. 54

d. 60

How many months will you need to live in the house for it to be cost effective to have paid the 2.5 points to reduce the annual interest rate by 0.5% (use simple payback method)? ve in dehose tor t to b s seple payback a. 140 b. 129 c. 54 d. 60

Explanation / Answer

This is for your understanding, we get at 140 instalment our house owned after decreasing PMI interest charges at 36th instalment. Since other table is not loadable, You can use either use goal seek in excel or other tools in excel, interest rate will decrease from 36th instalment and 104 instalments are needed to be paid to live in the house from their own.

So a.) option is correct If you assume that equal instalment is paid for the mortgage.

Total value of house 240000 Down Payment 24000 Remaining Payment 216000

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