Question

Rose and Andrew are financing 128,000 to purchase a condominium. They obtained a 15 year fixed rate loan with a rate of 5.05%. They have been given the option of purchasing up to four points to lower their rate to 4.81%. How much will the 4 points cost them?

Answer 1

Amount Financed(P) = $ 128,000

Time = 15 year

Rate of interest= 5.05%

Amount after 15 years translates to,

${\text{Using the formula}} P(1+\frac{R}{100})^n\\\\ 128,000(1 +\frac{5.05}{100})^{15}\\\\ =128,000 \times (1.0505)^{15}\\\\=128,000 \times 2.0938\\\\=268,009.890$

Rose and Andrew has taken four points to lower their rate to 4.81% .

   Amount after 15 years translates to, if rate of interest is 4.83 %

${\text{Using the formula}} P(1+\frac{R}{100})^n\\\\ 128,000(1 +\frac{4.83}{100})^{15}\\\\ =128,000 \times (1.0483)^{15}\\\\=128,000 \times 2.0290\\\\=259713.0404$

Cost of four points = 268,009.890 - 259,713.0404

                = $8296.8496