Consider the following pairs of loan options for a $120,000\$ 120,000 mortgage. Calculate the monthly payment and total closing costs for each option. Explain which option you would choose and why.

Choice 11: 3030-year fixed rate at 3.5%3.5 \% with closing costs of $1000\$ 1000 and no points

Choice 22: 3030-year fixed rate at 3%3 \% with closing costs of $1500\$ 1500 and 44 points


Answered 1 year ago
Answered 1 year ago
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The monthly payments can be calculated using the formula

PMT=P×(APRn)[1(1+APRn)(nY)]\text{PMT} = \dfrac{P \times \left( \dfrac{\text{APR}}{n} \right)}{\left[ 1 - \left(1 + \dfrac{\text{APR}}{n} \right)^{(-nY)} \right] }

where PMT\text{PMT} is the regular payment amount, APR\text{APR} is the annual percentage rate in decimal form, PP is the amount borrowed, nn is the number of payment periods per year, and YY is the loan term in years.

Compute for the month payments PMTPMT for each loan option by substituting the given quantities. Take note that for both cases, we have P=$120,000\textcolor{#c34632}{P = \$120,000}.

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