Consider the following pair of mortgage loan options for a $190,000 mortgage. Wh
ID: 3116265 • Letter: C
Question
Consider the following pair of mortgage loan options for a $190,000 mortgage. Which mortgage loan has the larger total cost (closing costs + the amount paid for points +total cost of interest)? By how much? Mortgage A: 20-year fixed at 6.25% with closing costs of $1800 and 1 point. Mortgage B: 20-year fixed at 4.5% with closing costs of $1800 and 2 points Choose the correct answer below, and fill in the answer box to complete your choice. 0 A. Mortgage A has a larger total cost than mortgage B by $ O B. Mortgage B has a larger total cost than mortgage A by $ (Round to the nearest dollar as needed.)Explanation / Answer
Mortgage A
Closing Cost=$1800
Interest=190000*6.25%*20=2,37,500
Amount for points=190000*1%=1900
Total Cost=237500+1800+1900=2,41,200
Mortgage B
Closing Cost=$ 1800
Interest=190000*4.5%*20Years=171000
amount paid for points=190000*2%=3800
Total Cost=171000+1800+3800=1,76,600
Correct Answer is A.
Mortgage A has the larger cost than mortgage B by $ 64,600 (2,41,200-1,76,600)