Mike is buying a house for $120,000. He has the choice of two mortgages describe
ID: 3144251 • Letter: M
Question
Mike is buying a house for $120,000. He has the choice of two mortgages described below. Which mortgage is more expensive? Use your calculations to provide rationale.
Bank A will give him a 30 year fixed rate mortgage with 7% interest, closing costs of $2,000, and one point.
Bank B is offering a 30 year fixed rate mortgage at 6.5% with closing costs of $1,500, and four points.
Dan is buying a house in Philadelphia as an investment for $180,000. The bank requires a 5% down payment and one point at the time of closing. He gets a mortgage with an interest rate of 8% for 30 years fixed rate. Solve for each of the following:
What is the down payment?
What is the amount of the mortgage?
How much is the one point?
What is the monthly payment?
What is the total interest over 30 years?
Explanation / Answer
$30000-$30000=$270000
Mortage amount. Mike must borrow use this formula. To calculate the monthly payment m
PRT =pv. R{[1+R]^N/[1+R]^N-1}
PMT=270000×0.05/12{[1+0.05/12]^(30*12)/1+0.05/12]^(30*12)-1]
PMT=1125×{4.467744314/3.467744314}
PMT=1.125×1.288371895
PMT=$1449. 42-mike 's monthly pay on his mortage