You plan to purchase a house for $125,000 using a 15-year mortgage obtained from your local bank....

Question:

You plan to purchase a house for $125,000 using a 15-year mortgage obtained from your local bank. You will make a down payment of 20 percent of the purchase price and monthly payments. You will not pay off the mortgage early. Assume that you will remain in the house for the full term and ignore taxes in your analysis. The bank has given you two options:

1. 5% interest and zero points. What is the mortgage payment?

2. 4.8% and 1 point. What is the mortgage payment?

3. Which option would you choose and how much would you save?

Please show all work

Mortgage Loan

Monthly mortgage payments are determined by the amount of the loan, the interest rate charged, the points charged, and the length of time of the mortgage.

Answer and Explanation:

The answers are:

1) $790.79

2) $780.41

3)Option 2 because it results in $868.40 in interest savings.

The same formula is used for answers 1 and 2....

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Buying a House: Mortgage Types & Loan Length

from Finance 102: Personal Finance

Chapter 7 / Lesson 4
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