Question

You need a loan of $120,000 to buy a home. Calculate your monthly payments and total closing costs for each choice below. Briefly discuss how you would decide between the two choices. Choice 1:20-year fed rate at 4% with closing costs of $2300 and no points Choice 2:20-year fixed rate at 3.5% with closing costs of $2300 and 5 points What is the monthly payment for choice 1? $727.18 (Do not round until the final answer. Then round to the nearest cent as needed.) What is the monthly payment for choice 2? $ 696.96 (Do not round until the final answer. Then round to the nearest cent as needed.) What is the total closing cost for choice 1? $ 2300 What is the total closing cost for choice 27 Why night choice 1 be the better choice?

Answer 1

120000 t 2H0 0.04 Monthly Payment for choice is Loan Amount = 20 years y = 4:1 = 00h Compounding frequency is monthly so t=20x12= 0.0033333 Pont ] [pxxx citost] / [(1+x) = -1 [120000 X 0.0033333 x C1+0.0033333).40] [cito-0033 333) 240_1] [399.99.6 x 2:22256] 1:22256 727.175. =18727 2. Monthly payment for choice 2- Loan Amount (P) te 20 years 3.5-1 -0.035 Compounding frequency is monthly so. = 24 o 0.035 0.0029166 [P XXX (1+x3+] / [c1 +23€-1] f120000 120000 X0.0029166 X (1+0.0029166)240] [CI+0.0029166) 240-1] [349.992 X 21011 66 1.01166 695.950 ~ 391696 1$ 696 1200 ४ ta 20 X 12 12 PMT =

E no Total closing = $2300 3 Total closing Cost of choice onetimi Given closing cost is $2300 points. Cost 2) Total closing Cost of choice 2? given closing cost is $2300 & 5 points. .-(Principal x 5.6) +2300 (120000 x 50) +230 0 6000 +2300 = $8300 6) why might s.) why might choice i be the better choice? option- (she closing Cost one lower) when compared to choice a choice ! etosing cost is lower with no points. be the better choice: option - Ashe Morthly payment is lower when compared with choice 1, monthly payment is choice 3 choice a lower