Let s say you approached a mortgage lender for a $ 3 5 0 , 0
Question:
Lets say you approached a mortgage lender for a $ loan to purchase a house. They are willing to offer you a loan at for a year term with mortgage payments due at the end of each month during the life of the loan. Set up a model to answer the following questions.
a What will be your monthly mortgage payment if you decide to take the loan at the rate?
b The lender also offers you a lower rate of if you agree to pay an extra of the loan amount $ in this example upfront. This is known as paying two mortgage points to buy down the interest rate. What will be your monthly saving on mortgage payment at the lower interest rate?
c Is the $ upfront payment worth the savings in mortgage payments due to the lower rate over the life of the loan? Back up your answer with calculations. Hint: Compare the present value of monthly savings to the upfront payment.
d Suppose you take the view that no matter which rate you sign up for, you will be able to refinance your mortgage and obtain a much lower rate in five years. This means that the savings from the lower rate of last only for the next five years, and not the entire fifteen years. Does this change your answer to c above? Back up your answer with calculations
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill