Consider the following:

• A house with price of $250,000
• 20% down payment, loan amount $200.000
• 30-year fixed rate mortgage with interest rate as follows:

Choice 1: Rate of 7% and 0 points

Choice 2: Rate of 6.75 % and 1 points

Choice 3: Rate of 6.25% and 3 points

Suppose that there is $2,500 origination cost.

1 [10 points]:Which choice would you like to choose if you will live in the house for 30 years?

2 [15 points]:Which choice would you like to choose if you will live in the house for 5 years?