anonymous
  • anonymous
Madison is financing $382,300 to purchase a house. How much money will she save over the life of a 30-year, fixed-rate loan by buying 3 points with a rate of 5.13% instead of not buying points with a rate of 5.88%? Round to the nearest dollar. A) $60,948 B) $63,242 C) $63,242 D) $53,302 (Not a typo)
Mathematics
  • Stacey Warren - Expert brainly.com
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SOLVED
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jamiebookeater
  • jamiebookeater
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anonymous
  • anonymous
@jim_thompson5910
jim_thompson5910
  • jim_thompson5910
are you familiar with the concept of points in mortgages?
anonymous
  • anonymous
Not a clue

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More answers

jim_thompson5910
  • jim_thompson5910
points reduce the interest rate
anonymous
  • anonymous
ok...
jim_thompson5910
  • jim_thompson5910
1 point usually reduces the interest rate by 1/4 of a percent or 1/8 of a percent
jim_thompson5910
  • jim_thompson5910
so if you don't buy any points up front, the interest rate is 5.88% if you do buy 3 points, then the interest rate is 5.13%
jim_thompson5910
  • jim_thompson5910
each point is 1% of the mortgage amount
jim_thompson5910
  • jim_thompson5910
each point costs you 1% of the mortgage amount
anonymous
  • anonymous
got it! so how do I solve this? in stupid words please :)
jim_thompson5910
  • jim_thompson5910
1% of $382,300 = 0.01*382,300 = 3,823
jim_thompson5910
  • jim_thompson5910
each point costs $3,823
jim_thompson5910
  • jim_thompson5910
but it looks like we're ignoring this cost for now
jim_thompson5910
  • jim_thompson5910
what is the monthly payment if... mortgage amount = $382,300 number of years = 30 annual interest rate = 5.88%
anonymous
  • anonymous
would I use the calculator from the bankrate website for mortgage?
jim_thompson5910
  • jim_thompson5910
yes
anonymous
  • anonymous
ok good in that case, first payment I got 2,082.75
jim_thompson5910
  • jim_thompson5910
is that with the points? or without?
anonymous
  • anonymous
it's with the points making the rate 5.13%
jim_thompson5910
  • jim_thompson5910
ok how about without the points
anonymous
  • anonymous
Without the points making the rate 5.88% the payment is 2,262.67
jim_thompson5910
  • jim_thompson5910
I'm getting the same monthly payments
anonymous
  • anonymous
ok. now what happens?
jim_thompson5910
  • jim_thompson5910
1 point costs 1% of the mortgage how much does 3 points cost?
anonymous
  • anonymous
3%?
jim_thompson5910
  • jim_thompson5910
take 3% of the mortgage
jim_thompson5910
  • jim_thompson5910
3% of $382,300 = ??
anonymous
  • anonymous
yes and I got 11,469
jim_thompson5910
  • jim_thompson5910
With 3 points Total Cost = (monthly payment)*(# of months) + (cost for points) Total Cost = (2,082.75)*(360) + (11,469) Total Cost = 761,259
jim_thompson5910
  • jim_thompson5910
With 0 points Total Cost = (2,262.67)*(360) Total Cost = 814,561.20
jim_thompson5910
  • jim_thompson5910
Amount you save = (total cost with 0 points) - (total cost with 3 points)
anonymous
  • anonymous
and now I just subtract the two?
jim_thompson5910
  • jim_thompson5910
I'm ignoring the down payment because it's the same for both so they subtract and cancel off
anonymous
  • anonymous
got it! I might have more later but for now thanks again! :)
anonymous
  • anonymous
My Final Answer and Correct Answer!! $53,302!
jim_thompson5910
  • jim_thompson5910
nice work

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