The Ruffins are negotiating with two banks for a mortgage to buy a house selling for $115,000. The terms at bank A are a 20% down payment, an interest rate of 10.5%, a 30-year conventional mortgage, and 3 points to be paid at the time of closing. The terms at bank B are a 15% down payment, an interest rate of 10.0%, a 25-year conventional mortgage, and no points. Which loan should the Ruffins select in order for the total cost of the house to be less?

The Ruffins are negotiating with two banks for a mortgage to buy a house selling for $115,000. The terms at bank A are a 20% down payment, an interest rate of 10.5%, a 30-year conventional mortgage, and 3 points to be paid at the time of closing. The terms at bank B are a 15% down payment, an interest rate of 10.0%, a 25-year conventional mortgage, and no points. Which loan should the Ruffins select in order for the total cost of the house to be less?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter19: Lease And Intermediate-term Financing

Section: Chapter Questions

Problem 19P

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Question

The Ruffins are negotiating with two banks for a mortgage to buy a house selling for

$115,000.

The terms at bank A are a

20%

down payment, an interest rate of

10.5%,

30-year

conventional mortgage, and

points to be paid at the time of closing. The terms at bank B are a

15%

down payment, an interest rate of

10.0%,

25-year

conventional mortgage, and no points. Which loan should the Ruffins select in order for the total cost of the house to be less?

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