Mr. and Mrs. MBA are planning to purchase a $200,000 house and have $40,000 as a down payment towards their purchase. The MBAs are considering two 30-year home mortgage loan options. The first option is 6.25% APR financing with no points. The second option is 5.9% APR financing that requires 1.5% (or 1.5 points) of the loan amount be paid up front in order to secure this lower finance rate for the entire needed loan amount (That is, you can think of 1.5 points is an additional fee to enjoy lower interest rate and this up-front fee should not be included in the loan amount.) Answer the following: A. What is the MBAs monthly payment for each loan? B. Ignoring the time value of money, how many months would the MBAs have to stay in their house to break even on the points they would pay on the second loan option vs. the no-point first loan option?
Mr. and Mrs. MBA are planning to purchase a $200,000 house and have $40,000 as a down payment towards their purchase. The MBAs are considering two 30-year home mortgage loan options. The first option is 6.25% APR financing with no points. The second option is 5.9% APR financing that requires 1.5% (or 1.5 points) of the loan amount be paid up front in order to secure this lower finance rate for the entire needed loan amount (That is, you can think of 1.5 points is an additional fee to enjoy lower interest rate and this up-front fee should not be included in the loan amount.) Answer the following:
A. What is the MBAs monthly payment for each loan?
B. Ignoring the
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