Question
You are buying a house and the mortgage company offers to let you pay a point (1.0% of the total amount of the loan) to
You are buying a house and the mortgage company offers to let you pay a "point" (1.0% of the total amount of the loan) to reduce your APR from 6.02% to 5.77% on your $409,000, 30-year mortgage with monthly payments. If you plan to be in the house for at least five years, should you do it? (Note: Be careful not to round any intermediate steps less than six decimal places.)
The monthly mortgage payment at 6.02% APR is $________
The monthly mortgage payment at 5.77% APR is $________
The lower interest rate on the mortgage results in monthly savings of $________
The PV of the monthly savings is $_________
The balance of the mortgage at the end of five years at 6.02% APR is $________
The balance of the mortgage at the end of five years at 5.77% APR is $________
The principal reduction due to the lower interest rate is $_________
The PV of the principal reduction is $_________
The net benefit or cost is $________
The net benefit is (positive/negative); therefore you (should/should not) pay the point?
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