Point of Mortgage: It is a term used to express the proportion of loan amount. Each point depicts one percentage of the loan amount. The total principal is of 100 points. So if a bank offers to let you pay a point, it implies that 1% percent of loan can be paid currently. It is generally used to reduce the rate of interest. Annual Percentage Rate Annual Percentage Rate is the simple interest earned in one year without the effect of compounding. It is the easiest way to quote an interest rate. It is expressed as the percentage that represents the actual annual cost of a loan for its tenure. For example, $100 will become $105 at the end of one year without the effect of compounding if annual percentage rate is quoted as 5%. To Analyze: The point of mortgage and reduced interest rate from 6.5% to 6.25%.

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Chapter 5, Problem 15P

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Point of Mortgage: It is a term used to express the proportion of loan amount. Each point depicts one percentage of the loan amount. The total principal is of 100 points. So if a bank offers to let you pay a point, it implies that 1% percent of loan can be paid currently. It is generally used to reduce the rate of interest.

Annual Percentage Rate Annual Percentage Rate is the simple interest earned in one year without the effect of compounding. It is the easiest way to quote an interest rate. It is expressed as the percentage that represents the actual annual cost of a loan for its tenure. For example, $100 will become $105 at the end of one year without the effect of compounding if annual percentage rate is quoted as 5%.

To Analyze: The point of mortgage and reduced interest rate from 6.5% to 6.25%.

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