Rajiv and Laurie Amin are recent college graduates looking to purchase a new home. They are purchasing a $200,000 home by paying $20,000 down and borrowing the other $180,000 with a 30-year loan secured by the home. The Amins have the option of (1) paying no discount points on the loan and paying interest at 8 percent or (2) paying one discount point on the loan and paying interest of 7.5 percent. Both loans require the Amins to make interest-only payments for the first five years. Unless otherwise stated, the Amins itemize deductions irrespective of the amount of interest expense. The Amins are in the 25 percent marginal ordinary income tax bracket.

a) Assuming the Amins do not itemize deductions, what is the break-even point for paying the point to get a lower interest rate?

b) Assuming the Amins do itemize deductions, what is the break-even point for paying the point to get a lower interest rate?

c) Assume the original facts, except that the amount of the loan is $300,000.
What is the break-even point for the Amins for paying the point to get a lower interest rate?

d) Assume the original facts, except that the $180,000 loan is a refinance instead of an original loan. What is the break-even point for paying the point to get a lower interest rate?

e) Assume the original facts, except that the amount of the loan is $300,000 and the loan is a refinance and not an original loan. What is the break-even point for paying the point to get a lower interest rate?