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P 435 - 436 New

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rafaelmahdi84
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I Applications

People are living ronger than ever before, a phenomenon


undoubtedly made necessary by the 3O_year mortgage.
Larson, newspaper columnist
-Doug

ANSWERS
1' Read the quote at the beginning of this section. Interpret
what you have learned about discount points.
the quote in terms
' of 1. This is a tongue in cheek
quote. in effJct, it says that
See margin.
2' Determine the cost of the points and the new interest
rate for each
amount and interest rate. Assume each point costs 17o of
loan ir"r"ff"Y,T:i?J;!""'?J,n;t
the loan amounl. "
they can reap the benefits of
original APR 4.1%, i poiniwith al.2o/odiscount beins mortsage debt rree!
.a. 1199,000,
b. ilil, ;;;
original ApR 3.95%, i points with a 0.25o/od.iscount per
t?19,000, point $5,000; 3.4s%

d. $550,000, original ApR4.75%o,1 pointwith a 0.3% discount


$5,500; 4.45%
e' $1'000,000, original APR4.45o/o,i points with a 0.215o/od.iscount
per point $20,000; 412%
i, Rhonda wants to take out a 30-year, $2g0,000 loan with
a 4.4o/oApR. She is
considering purchasing 2 points, which will decrease
her ApR b y 0.L25o/o per
point. Each point will cost 1% of her loan. compare
her monthly payments
rvith and without the purchase of the points.
$f ,+OZ.r g r"- Si,ii, O,
4. i.P. has been offered a2O-year,$350,000]oan
with a3.9o/oApR. If he purchases
1 point, his APR will reduce to 3.7o/o. How
much will his monthly payment
savings be? ggo.sz .F\
'\$
5. Tonip-urchased 3 points, each of which reduced !\.
her ApR by 0.r25o/o.Each point
cost 1%o of her loan value. Her new ApR is 3.2o/o,and
the poi.rt, cost her $g,100. i:'r'
a. What was the original ApR? 3.57s%
b. What principal? $zzO,ooo
is her
I

6' Dylan purchased A points, each of which reduced 'd


his ApR by B%o.The cost t
,
per point was 1% of the loan amount. His new
ApR is co/o, and,his points cost
him D dollars. Write an algebraic expression for: !\

:. l]r. original ApB (c + AB)%


b. The principal _-
-' t31*,r. a $380,000, 30-year mortgage at 3.54%.
The bank offered
She is
-025voper
deciding whether to purchase points to ieduce rr"ifrn
J uf point.
Each point will cost lyo of the [oin value.
a- Calculate her monthly payments with the points.
$1,6i 0.30
b, Calculate her monthly payments without the points.'g
,,r,0.r,
c. Determine the breakeven month. 72.7 months
$- The credit union offered Zach a$200,000, 10,year loan at
a 3.6250/o ApR.
Zach purchase 1 point or no points? Each point rowers
thould the ApR bv
J'125o/o and costs Lo/o
of the roan amount. iustifyyour r."rorrirg. N;;ih;;i"rkeven point is
!. -\Iarina wants to take out a $500,000 loan to purchase
a new rr"-3.oitt 'f#"rltt
'offersa 25-year loan with an ApR of 3.go/o.If she purchases LpJnt for ro/o of
-lre value of the loan,
she will reduce her ApR ayb.Zolo.
r '
a- What is her monthly savings with the point purchase? gat.t
o
b. When will she break even? 61.6 months
c- Assume she decided not to buy the point and put the
cost into a certificate
of deposit that pays 1.5%o interest cornpounded monthry.
wo"ra this have
been a better way to use the cost of the points? Explain.
Comparing total loan interest accrued in ea-ch situation
--nat *"""""'
and taking into account
$2,273.25 in savings interest will be accrued, the points ur" ["ii"r. 7-5 Mortgage Points
10. Lincoln Towers Bank offers borrowers a zero closing cost loan. Each negative
point reduces the bank's closing costs by 1% of the principal and increases the
APR by 0.125o/o.Ibraheem wants to borrow $450,000 from Lincoln Towers at
3.48o/o for 20 years. The estimated closing costs are $9,000.
7
,u.
H9* many negative points does he need to have a zero closing cost loan?
b. lVhat will his new APR be on the loan?
c. There is a chance that in 12 years, his company may be moving to a
different state. Are these negative points worth the investment?
1 1. Kennesaw credit Union offers a 4.25o/o, 1 5-year mortgage. sadie wants to
borrow $300,000 and purchase enough negative poinis io eliminate her $9,000
closing costs. Each point increases her ApR by o.l25o/o and reduces the bankt
closing costs by 1% of the principal.
a. How many points will she need?
b. What will her new APR be?
1
c. What is the breakeven time for Sadie's loan?

Chapter 7 lndependent Living

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