You plan to purchase a house for $ 175,000 using a 15-year mortgage obtained from your local bank. You will make a down payment of 25 percent of the purchase price. You will not pay off the mortgage early.
a. Your bank offers you the following two options for payment: Option 1: Mortgage rate of 5 percent and zero points. Option 2: Mortgage rate of 4.75 percent and 2 points. Which option should you choose?
b. Your bank offers you the following two options for payments: Option 1: Mortgage rate of 4.85 percent and 2 points. Option 2: Mortgage rate of 4.68 percent and 3 points. Which option should you choose?