You need a loan of $175,000 to buy a home. Calculate your monthly payments and t

Question

You need a loan of $175,000 to buy a home. Calculate your monthly payments and total closing costs for each choice below.   

Choice 1 - 30-year fixed rate at 7% with closing costs of $1,500 and no points

Choice 2 - 30-year fixed rate at 6.5% with closing costs of $1,500 and 5 points.

What is the monthly payment for choice 1? (Do not round until the final answer. Then round to the nearest cent as needed).

What is the montly payment for choice 2? (Do not round until the final answer. Then round to the nearest cent as needed).

What is the total closing cost for choice 1? I would say 1,500.

What is the total closing cost for choice 2 ? I believe the answer is $10,250 ( includes 1,500 plus $1,750 (1%) for 5 points equals $8,750).

I am weak in math so I am having a hard time understanding in plain English how to calculate the montly payment or how to input on a scientific calculator.

Thank you in advance for your guidance.

Explanation / Answer

Monthly Payment in Choice 1

$175,000 * (0.07 /12) / {1 - [(1 + 0.07/12)^(-12 * 30)]} = $1,164.279

Monthly Payment in Choice 2

$175,000 * (0.065 /12) / {1 - [(1 + 0.065/12)^(-12 * 30)]} = $1,106.119

Total Closing Cost for Choice 1 = $1,500

Total Closing Cost for Choice 2 = $1,500 + 5% * $175,000 = $10,250

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