A community for students.

Here's the question you clicked on:

55 members online
  • 0 replying
  • 0 viewing

anonymous

  • one year ago

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)

  • This Question is Closed
  1. anonymous
    • one year ago
    Best Response
    You've already chosen the best response.
    Medals 0

    @jim_thompson5910

  2. jim_thompson5910
    • one year ago
    Best Response
    You've already chosen the best response.
    Medals 1

    are you familiar with the concept of points in mortgages?

  3. anonymous
    • one year ago
    Best Response
    You've already chosen the best response.
    Medals 0

    Not a clue

  4. jim_thompson5910
    • one year ago
    Best Response
    You've already chosen the best response.
    Medals 1

    points reduce the interest rate

  5. anonymous
    • one year ago
    Best Response
    You've already chosen the best response.
    Medals 0

    ok...

  6. jim_thompson5910
    • one year ago
    Best Response
    You've already chosen the best response.
    Medals 1

    1 point usually reduces the interest rate by 1/4 of a percent or 1/8 of a percent

  7. jim_thompson5910
    • one year ago
    Best Response
    You've already chosen the best response.
    Medals 1

    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%

  8. jim_thompson5910
    • one year ago
    Best Response
    You've already chosen the best response.
    Medals 1

    each point is 1% of the mortgage amount

  9. jim_thompson5910
    • one year ago
    Best Response
    You've already chosen the best response.
    Medals 1

    each point costs you 1% of the mortgage amount

  10. anonymous
    • one year ago
    Best Response
    You've already chosen the best response.
    Medals 0

    got it! so how do I solve this? in stupid words please :)

  11. jim_thompson5910
    • one year ago
    Best Response
    You've already chosen the best response.
    Medals 1

    1% of $382,300 = 0.01*382,300 = 3,823

  12. jim_thompson5910
    • one year ago
    Best Response
    You've already chosen the best response.
    Medals 1

    each point costs $3,823

  13. jim_thompson5910
    • one year ago
    Best Response
    You've already chosen the best response.
    Medals 1

    but it looks like we're ignoring this cost for now

  14. jim_thompson5910
    • one year ago
    Best Response
    You've already chosen the best response.
    Medals 1

    what is the monthly payment if... mortgage amount = $382,300 number of years = 30 annual interest rate = 5.88%

  15. anonymous
    • one year ago
    Best Response
    You've already chosen the best response.
    Medals 0

    would I use the calculator from the bankrate website for mortgage?

  16. jim_thompson5910
    • one year ago
    Best Response
    You've already chosen the best response.
    Medals 1

    yes

  17. anonymous
    • one year ago
    Best Response
    You've already chosen the best response.
    Medals 0

    ok good in that case, first payment I got 2,082.75

  18. jim_thompson5910
    • one year ago
    Best Response
    You've already chosen the best response.
    Medals 1

    is that with the points? or without?

  19. anonymous
    • one year ago
    Best Response
    You've already chosen the best response.
    Medals 0

    it's with the points making the rate 5.13%

  20. jim_thompson5910
    • one year ago
    Best Response
    You've already chosen the best response.
    Medals 1

    ok how about without the points

  21. anonymous
    • one year ago
    Best Response
    You've already chosen the best response.
    Medals 0

    Without the points making the rate 5.88% the payment is 2,262.67

  22. jim_thompson5910
    • one year ago
    Best Response
    You've already chosen the best response.
    Medals 1

    I'm getting the same monthly payments

  23. anonymous
    • one year ago
    Best Response
    You've already chosen the best response.
    Medals 0

    ok. now what happens?

  24. jim_thompson5910
    • one year ago
    Best Response
    You've already chosen the best response.
    Medals 1

    1 point costs 1% of the mortgage how much does 3 points cost?

  25. anonymous
    • one year ago
    Best Response
    You've already chosen the best response.
    Medals 0

    3%?

  26. jim_thompson5910
    • one year ago
    Best Response
    You've already chosen the best response.
    Medals 1

    take 3% of the mortgage

  27. jim_thompson5910
    • one year ago
    Best Response
    You've already chosen the best response.
    Medals 1

    3% of $382,300 = ??

  28. anonymous
    • one year ago
    Best Response
    You've already chosen the best response.
    Medals 0

    yes and I got 11,469

  29. jim_thompson5910
    • one year ago
    Best Response
    You've already chosen the best response.
    Medals 1

    With 3 points Total Cost = (monthly payment)*(# of months) + (cost for points) Total Cost = (2,082.75)*(360) + (11,469) Total Cost = 761,259

  30. jim_thompson5910
    • one year ago
    Best Response
    You've already chosen the best response.
    Medals 1

    With 0 points Total Cost = (2,262.67)*(360) Total Cost = 814,561.20

  31. jim_thompson5910
    • one year ago
    Best Response
    You've already chosen the best response.
    Medals 1

    Amount you save = (total cost with 0 points) - (total cost with 3 points)

  32. anonymous
    • one year ago
    Best Response
    You've already chosen the best response.
    Medals 0

    and now I just subtract the two?

  33. jim_thompson5910
    • one year ago
    Best Response
    You've already chosen the best response.
    Medals 1

    I'm ignoring the down payment because it's the same for both so they subtract and cancel off

  34. anonymous
    • one year ago
    Best Response
    You've already chosen the best response.
    Medals 0

    got it! I might have more later but for now thanks again! :)

  35. anonymous
    • one year ago
    Best Response
    You've already chosen the best response.
    Medals 0

    My Final Answer and Correct Answer!! $53,302!

  36. jim_thompson5910
    • one year ago
    Best Response
    You've already chosen the best response.
    Medals 1

    nice work

  37. Not the answer you are looking for?
    Search for more explanations.

    • Attachments:

Ask your own question

Sign Up
Find more explanations on OpenStudy
Privacy Policy

Your question is ready. Sign up for free to start getting answers.

spraguer (Moderator)
5 → View Detailed Profile

is replying to Can someone tell me what button the professor is hitting...

23

  • Teamwork 19 Teammate
  • Problem Solving 19 Hero
  • You have blocked this person.
  • ✔ You're a fan Checking fan status...

Thanks for being so helpful in mathematics. If you are getting quality help, make sure you spread the word about OpenStudy.

This is the testimonial you wrote.
You haven't written a testimonial for Owlfred.