You are purchasing a new home and need to borrow $250,000 from a mortgage lender

Question

You are purchasing a new home and need to borrow $250,000 from a mortgage lender. The mortgage lender quotes you a rate of 6.25% APR for a 30-year fixed rate mortgage. The mortgage lender also tells you that if you are willing to pay two points, they can offer you a lower rate of 6.0% APR for a 30-year fixed rate mortgage. One point is equal to 1% of the loan value. So if you take the lower rate and pay the points, you will need to borrow an additional $5000 to cover points you are paying the lender.

Assuming you do not pay the points and borrow from the mortgage lender at 6.25%, then your monthly mortgage payment (with payments made at the end of the month) will be closest to:

A) $1570

B) $1530

C) $1540

D) $1500

Explanation / Answer

Answer (C ) 1540

$1,539.23 Approx 1540

APR (yearly) 6.25% APR (monthly) : 6.25%/12 0.005208333 Present Value 250000 Interest Rate 0.005208 Future Value 0 Number of periods (N) : 30*12 360 PMT

$1,539.23 Approx 1540

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