When buying a home mortgage, you often have the option of paying some money in advance (called “discount points”) to get a lower interest rate. Assume that you have the choice between two 15-year mortgages: one at 8%,

and the other at 7 3/4% with an up-front charge of 1% of the mortgage value.

How long would it take to recover the 1% charge when you take the mortgage at the lower rate? As a second, more precise estimate, how long would it take to recover the charge plus the interest you would have received if you had invested the equivalent of the 1% charge in the bank at 5% interest while paying the higher rate? DO NOT use a calculator to help you answer this question.