The housing market is very slow, and Dan Johnson agrees to purchase Morris Callahans home for $350,000, contingent on obtaining the necessary financing. But Johnson can afford to put only 10% down, and it turns out that he cant quite qualify for the monthly payment on a 90%, 30-year conventional loan at the market interest rate, 8.75%. Callahan offers to permanently buy the interest rate down to 7.75% so that Johnson can qualify for the loan and go through with the purchase.

1. In this market, lenders estimate that it takes about six points to increase the yield on a loan by 1%. Approximately how much would a permanent buydown cost Callahan?

2. With the buydown, Johnsons monthly principal and interest payment would be $2,256.70, compared to $2,478.11 without the buydown. How much could the buydown save Johnson over the life of the loan?

This the full problem nothing is missing.