You are buying a house and will borrow $205,000 on a 30-year fixed rate mortgage with monthly payments to finance the purchase. Your loan officer has offered you a mortgage with an APR of 4.35%. Alternatively, she tells you that you can "buy down the interest rate to 4.15% if you pay points up front on the loan. A point on a loan is 1% (one percentage point) of the loan value. You believe that you will live in the house for only eight years before selling the house and buying another house. This means that in eight years, you will pay off the remaining balance of the original mortgage. What is the maximum number of points that you would be willing to pay now? (Do not round intermediate calculations. Round your answer to 2 decimal places, e.g., 32.16.) Maximum points
You are buying a house and will borrow $205,000 on a 30-year fixed rate mortgage with monthly payments to finance the purchase. Your loan officer has offered you a mortgage with an APR of 4.35%. Alternatively, she tells you that you can "buy down the interest rate to 4.15% if you pay points up front on the loan. A point on a loan is 1% (one percentage point) of the loan value. You believe that you will live in the house for only eight years before selling the house and buying another house. This means that in eight years, you will pay off the remaining balance of the original mortgage. What is the maximum number of points that you would be willing to pay now? (Do not round intermediate calculations. Round your answer to 2 decimal places, e.g., 32.16.) Maximum points
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Problem 6-69 Calculating Interest Rates (LO2)
You are buying a house and will borrow $205,000 on a 30-year fixed rate mortgage with monthly payments to finance the purchase.
Your loan officer has offered you a mortgage with an APR of 4.35%. Alternatively, she tells you that you can "buy down" the interest
rate to 4.15% if you pay points up front on the loan. A point on a loan is 1% (one percentage point) of the loan value. You believe that
you will live in the house for only eight years before selling the house and buying another house. This means that in eight years, you
will pay off the remaining balance of the original mortgage. What is the maximum number of points that you would be willing to pay
now? (Do not round intermediate calculations. Round your answer to 2 decimal places, e.g., 32.16.)
Maximum points
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