Mortgage from your local bank

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Reference no: EM131551394

You plan to purchase a house for $115,000 using a 30-year mortgage from your local bank. You will make a down payment of 20% of the purchase price.

A. Your bank offers you the following two options for payment:

Option 1: Mortgage rate of 9% and zero discount points.

Option 2: Mortgage rate of 8.85% and two discount points.

Which option would you choose?

b) Your bank offers you the following two options for payment:

Option 1: Mortgage rate of 10.25% and 1 discount point.

Option 2: Mortgage rate of 10% and 2.5 discount points.

Which option would you choose? [Hint: consider only the incremental costs and benefits of Option 2 with respect to Option 1]

Reference no: EM131551394

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