You are looking to purchase a $450,000 home, and you will put up 20% of...
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You are looking to purchase a $450,000 home, and you will put up 20% of that price as a down payment (meaning that you will need a loan to pay for the rest). You are looking at several different loan packages but have narrowed it down to a 30-year fully-amortizing mortgage loan, with an APR of 3.675%. However, you are undecided about whether to buy points. You would either purchase 3 points or none at all, and these points would reduce the mortgage rate by the standard percentage per point.
A) What would be the NPV of buying the points if you expected to keep the house for at least 30 years (so that you would fully pay off the loan)?
B) What would be the NPV of buying the points if you only expected to keep the house for 6 years, when you would sell the house and be required to repay the remaining balance of the loan?
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