You are buying a house and the mortgage company offers to let you pay a "point"
(1.0 %
of the total amount of the loan) to reduce your APR from
6.34 %
to
6.09 %
on your
$ 420 comma 000
,
30
-year
mortgage with monthly payments. If you plan to be in the house for at least five years, should you do it? (Note: Be careful not to round any intermediate steps less than six decimal places.)
The monthly mortgage payment at
6.34 %
APR is
$nothing
.
(Round to the nearest cent.)
The monthly mortgage payment at 6.34% APR is:
The monthly mortgage payment at 6.09% APR is:
The lower interest rate on the mortgage results in monthly savings of:
The PV of the monthly savings is:
The balance of the mortgage at the end of five years at 6.34% APR is:
The balance of the mortgage at the end of five years at 6.09% APR is:
The principle reduction due to the lower interest rate is:
The PV of the principle reduction is:
The net benefit or cost is:
The net benefit is (positive or negative); therefore, you (should or should not) pay the point.
