You plan to purchase a house for $ 115,000 using a 30-year mortgage obtained from your local bank. You will make a down payment of 20 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 9 percent and zero points. Option 2: Mortgage rate of 8.85 percent and 2 points. Which option should you choose?
b. Your bank offers you the following two options for payment: Option 1: Mortgage rate of 10.25 percent and 1 point. Option 2: Mortgage rate of 10 percent and 2.5 points. Which option should you choose?