You plan to purchase a house for $115,000 using a 30-year mortgage obtained from your local bank. You will make a down payment of 20 percent of the purchase price. You will not pay off the mortgage early. (LG 7-3)

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

Option 1: Mortgage rate of 9 percent and zero points.

Option 2: Mortgage rate of 8.85 percent and 2 points.

Which option should you choose?

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

Option 1: Mortgage rate of 10.25 percent and 1 point.
Option 2: Mortgage rate of 10 percent and 2.5 points.
Which option should you choose?

AppendixLO1