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Suppose you have a choice between (1) the 5%, 15-year mortgage and (2) the 4.5% mortgage with 2.5 discount points. Note that choosing the 2.5
Suppose you have a choice between (1) the 5%, 15-year mortgage and (2) the 4.5% mortgage with 2.5 discount points. Note that choosing the 2.5 discount point loan will save you $77.40 per month. If you go for the discount point loan, what is the minimum length of time you should keep the mortgage for the savings to outweigh the upfront cost? Note that upfront cost = 2.5% of $300,000 = $7,500. To answer this question, you need to determine when the present value of the savings equals the $7,500 upfront cost.
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