When obtaining a mortgage, one choice you make is whether to pay points in exchange for a lower interest rate. This homework asks you to work through the math to decide whether to do so$.$

Scenario Details:

Amount of mortgage: $$500,000$

Other closing costs: $$6,500$

Length of mortgage: $30$ years

Mortgage interest compounds monthly, and payments are monthly

Expected duration of residence: $4$ years

Mortgage Options:

Mortgage A

Interest rate: $7\mathrm{.}5\%$

Points: $0$

Mortgage B

Interest rate: $7\mathrm{.}0\%$

Points: $2$

Further instructions:

Round all answers to two decimal places.

Pay attention to negative signs.

Do not include dollar signs $($$$).$QUESTION $1$

$10$ points

You should choose the mortgage with the

Lowest monthly payment

Highest present value

Lowest closing costs

Lowest total cash flows

QUESTION $2$

What is the payment for Mortgage A $($rounded to two decimal places$)?$

QUESTION $3$

What is the payment for Mortgage B $($rounded to two decimal places$)?$

QUESTION $4$

When you payoff your mortgage in four years, how much will that lump sum payment be for Mortgage A$?$ Be sure to use the rounded mortgage

pavment in this calculation.