You are buying a house and the mortgage company offers to let you pay aâ€‹ \"point\" â€‹(1.0...

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Finance

You are buying a house and the mortgage company offers to letyou pay aâ€‹ \"point\"
â€‹(1.0 %
of the total amount of theâ€‹ loan) to reduce your APR from
6.46 %
to
6.21 %
on your
$ 403 comma 000
â€‹,
30
â€‹-year
mortgage with monthly payments. If you plan to be in the housefor at least fiveâ€‹ years, should you doâ€‹ it? â€‹(Note: Be careful notto round any intermediate steps less than six decimalâ€‹ places.)
The monthly mortgage payment at 6.46% APRis:
The monthly mortgage payment at 6.21% APRis:
The lower interest rate on the mortgage results inmonthly savings of:
The PV of the monthly savings is:
The balance of the mortgage at the end of five years at6.46% APR is:
The balance of the mortgage at the end of five years at6.21% APR is:
The principle reduction due to the lower interest rateis:
The PV of the principle reduction is:
The net benefit or cost is:
The net benefit is (positive or negative); therefore,you (should or should not) pay the point.

Answer & Explanation Solved by verified expert

3.5 Ratings (410 Votes)

The monthly mortgage payment at 646 APRRateMonthly interest 64612053833NperNumber of months of mortgage3603012PvAmount of loan403000PMTMonthly mortgage payment253664Using PMT function of excel with Rate 053833 Nper360Pv403000The monthly mortgage payment at 621 APRRateMonthly interest 62112051750NperNumber of months of See Answer

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