Luke plans to purchase a house for $350,000 using a 30-year mortgage obtained from his local bank. He will make a down payment of 20 percent of the purchase price. He will not pay off the mortgage early. Assume the homeowner will remain in the house for the full term and ignore taxes in your analysis.

His bank offers him the following two options for payment:

Option 1: mortgage rate of 5.20% for zero points

Option 2: mortgage rate of 4.95% for 1.5 points

a. What is the NET present value of his savings if Luke remains in the home the full term ?

b. How long must Luke own the house to make option 2 worthwhile?

a) a. $3846.54 and b. 10.5 years

b) a. $4200 and b. 8.2 years

c) a. $8046.54 and b.7.8 years

d) $3494.56 and 12.9 years