You are purchasing a new home and need to borrow $325,000 from a mortgage lender. The lender quotes a rate of 6.5% APR for a 30-year fixed rate mortgage (with payments made at the end of each month). The lender offers you the option to "buy down" the interest rate. If you pay 1 point, the interest rate will be reduced to 6.25% APR for a 30year fixed rate mortgage. One point is equal to 1% of the loan value. So if you pay the point, you will effectively pay 1% of the stated loan amount in order to reduce your monthly payments. Monthly payments are calculated based on the stated loan amount, which in this case is $325,000. Assuming you do not intend to prepay your mortgage (i.e., pay off your mortgage early), what is the effective annual rate of return of paying the point? Hint: think in terms of incremental costs and benefits.