## Dominic considers buying 2 points on a 25-year, fixed rate mortgage for $187,600. His interest rate will be 5.45% if he does not purchase th

Question

Dominic considers buying 2 points on a 25-year, fixed rate mortgage for $187,600. His interest rate will be 5.45% if he does not purchase the

points. If he does purchase the points, his interest rate will decrease to 5.2%. What would be the break-even point on Dominic’s mortgage

considering the cost of the points?

in progress
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Math
2 weeks
2021-09-15T08:51:03+00:00
2021-09-15T08:51:03+00:00 1 Answer
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## Answers ( )

Answer:If Dominic buys 2 points (2% of the loan value) he will get a better rate and hence less payment. The question is asking how long will it take him to save the initial investment of 2% of the loan value due to a smaller payment. The monthly payment at 5.45% is $1,146.43, the monthly payment for 5.2% is $1,118.66. This is a difference of $27.77 per month. The 2 points will cost him $3,752.00. The question is asking how long will it take Dominic to re-coup his $3,752.00 if he saves $27.77 per month. Just divide the 2 numbers and you get 135.10 months. If you divide that by 12 you get 11.26 years, which is roughly 11 years, 4 months.

Step-by-step explanation:Here is what the question is asking. If Dominic buys 2 points (2% of the loan value) he will get a better rate and hence less payment. The question is asking how long will it take him to save the initial investment of 2% of the loan value due to a smaller payment. The monthly payment at 5.45% is $1,146.43, the monthly payment for 5.2% is $1,118.66. This is a difference of $27.77 per month. The 2 points will cost him $3,752.00. The question is asking how long will it take Dominic to re-coup his $3,752.00 if he saves $27.77 per month. Just divide the 2 numbers and you get 135.10 months. If you divide that by 12 you get 11.26 years, which is roughly 11 years, 4 months.