he math: One point on a mortgage loan is 1% of the principal. (The principal is the amount to be financed.) Example: On a $380,000 mortgage, one point is . You are buying a house, taking out a 30-year mortgage. After making a down payment on this house, you still need to finance $205,000 plus $5000 closing costs. (This is called rolling the closing costs into the loan). So your mortgage will be $210,000 on a loan term of 30 years. Two loans are offered: Loan A: no points & an interest rate (APR) of 4.5% Loan B: 1 points & an interest (APR) rate of 4.2%
The math: One point on a mortgage loan is 1% of the principal. (The principal is the amount to
be financed.) Example: On a $380,000 mortgage, one point is .
You are buying a house, taking out a 30-year mortgage. After making a down payment on this house, you still need to finance $205,000 plus $5000 closing costs. (This is called rolling the closing costs into the loan). So your mortgage will be $210,000 on a loan term of 30 years.
Two loans are offered:
Loan A: no points & an interest rate (APR) of 4.5%
Loan B: 1 points & an interest (APR) rate of 4.2%
As you can see, option B has a lower APR leading to lower payments, but an up-front cost.
For both loans, the down payment has already been subtracted/applied. You do have the extra money saved
up to pay the point if you choose Loan B, so the amount to be financed is THE SAME for Loan A and Loan B, $210,000
for loan A: Use the loan formula to calculate the monthly payment on the financed amount.
for loan A: Calculate the total amount paid back over the life of the loan.
for loan A: Calculate the total interest paid on the loan.
- For loan B: Calculate the dollar amount that has to be paid for the point on loan B?
for loan B: Use the loan formula to calculate the monthly payment (ignoring the dollar amount for the point).
for loan B: Calculate the total amount paid back over the life of the loan (ignoring the dollar amount for the point).
- For loan B: Calculate the total interest paid on the loan (ignoring the dollar amount for the point).
Calculate the difference in MONTHLY payment ($ amount) between loan A and loan B.Use a division of two appropriate numbers from above to calculate the number of months it takes for the owner of Loan B to break even with the out-front fee of the point. Then turn this number of months into years and round to one decimal place.
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