Present value of the monthly saving is less that points paid

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Reference no: EM13890657

You plan to purchase a house for 250,000 using a 15-year mortgage obtained from your local bank. You will make a down payment of 20% of the purchase price and monthly payments. You will not pay off the mortgage early. Your bank offers you the following two options for the payment:

Option 1: Mortgage rate of 3.75% and zero points

Option 2: Mortgage rate of 3.50% and 2 points.

Which of the following is correct? Round your calculations to two decimals.

I. In exchange for $4000 up front, Option 2 reduces your monthly mortgage payments by $ 28.14

II. The present value of the monthly savings is less that the points paid up front.

III. Option 1 is the better choice.

a. I only

b. II only

c. I and II only

d. II and III only

e. I, II, and III

Reference no: EM13890657

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