Bank offers home buyer two options for mortgage payment

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Reference no: EM131315723

Financial Market

1. A bank offers a home buyer two options for mortgage payment:

Option 1: $0.67 million loan, 30-year fixed-rate mortgage at a rate of 6.06 percent with zero points.

Option 2: $0.67 million loan, 30-year fixed-rate mortgage at a rate of 5.5 percent with 2.29 points.

If you will keep the mortgage for 30 years, what is the net present value of the monthly savings (or costs) of paying the points? Hint: net present value of the savings is the present value of savings minus the points paid up front.

Reference no: EM131315723

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