Homework: 8.7 Score: 0 of 1 pt X8.7.7 Save 7 of 10 (10 complete) Hw Score: 63.15
ID: 2819150 • Letter: H
Question
Homework: 8.7 Score: 0 of 1 pt X8.7.7 Save 7 of 10 (10 complete) Hw Score: 63.15%, 6.32 of 10 pts Question Help | * Consider the following pair of mortgage loan options for a $185,000 mortgage. Which mortgage loan has the larger total cost (closing costs +the amount paid for points + total cost of Interest)? By how much? Mortgage A: 15-year fixed at 12.25% with closing ts of $2600 and 1 point. Mortgage B: 15-year fixed at 11.25% with dsing costs of $2600 and 3 points. Choose the correct answer below, and fill in the answer box to complete your choice. O A. Morgage B has a larger total cost than mortgage A by S O B. Mortgage A has a larger total cost than mortgage B by $ Round to the nearest dolilar as neededExplanation / Answer
Mortgage points are fees paid directly to the lender at closing in exchange for a reduced interest rate. This is also called “buying down the rate,” which can lower the monthly mortgage payments. One point costs 1% of the mortgage amount (or $10 for every $1000). Essentially, some interest is paid up front in exchange for a lower interest rate over the life of the loan.
Calculation of total mortgage cost:
Total cost = Closing Costs + Amt paid for Points + Total Cost of Interest
Mortgage A: $2600+ (185000*1/100)*1 + 214656 = 219106
Mortgage B: $2600+ (185000*1/100)*3 + 183097 = 191247
Difference in total cost = 219106-191247 = 27859
Thus, Mortgage A has a larger total cost by $27859 and Option B is the correct option.
Note: Interest cost has been calculated assuming 0.25 discount on the interest rate per point purchased.
PS: Please feel free to comment for any clarification that you may require. I'll be happy to help you. Have a great day ahead !!
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.