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Considering the following pairs of choices for a $\$ 120,000$ mortgage loan. Calculate the monthly payment and total closing costs for below choice. Explain which loan you would choose and why. 1: $30$year fixed rate mortgage at $4 \%$ with no closing costs and no points Choice 2: $30$ year fixed rate mortgage at $3 \%$ with closing costs of $\$ 1200$ and $4$ points
Solution
VerifiedThe goal is to determine the monthly payment and total closing costs of the following:

Option $1$: A mortgage loan of $\$120000$ for $30$ years with a fixed rate of mortgage of $4\%$ with no closing costs and no points.

Option $2$: A mortgage loan of $\$120000$ for $30$ years with a fixed rate of mortgage of $3\%$ with closing costs of $\$1200$ and $4$ points.
To determine the monthly payment, apply:
$PMT=\dfrac{P\times \frac{APR}{n}}{[1(1+\frac{APR}{n})^{nY}]}$
where $PMT$ is the monthly payment, $P$ is the amount loan, $APR$ is the mortgage rate, $n$ is the number of payments per year, and $Y$ is the number of years.
To determine the total closing cost, multiply the given amount loan by the given point fee (as a percentage) and add the answer and the given closing costs.
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