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You are purchasing a new home and need to borrow $500,000 from a mortgage lender. The mortgage lender quotes you a rate of 6.25% APR

You are purchasing a new home and need to borrow $500,000 from a mortgage lender. The mortgage lender quotes you a rate of 6.25% APR for a 30-year fixed rate mortgage. The mortgage lender also tells you that if you are willing to pay 2 points, they can offer you a lower rate of 6.0% APR for a 30-year fixed rate mortgage. One point is equal to 1% of the loan value. So if you take the lower rate and pay the points you will need to borrow an additional $10,000 to cover points you are paying the lender.

a. Assuming you dont pay the points and borrow from the mortgage lender at 6.25%, then what would be your monthly mortgage payment (with payments made at the end of the month)?

b. Assuming instead that you pay the points and borrow from the mortgage lender at 6.00%, then what would be your monthly mortgage payment (with payments made at the end of the month)? Should you pay or not the points upfront?

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