Leonard is evaluating a $400,000 mortgage. He can get a 30-year 6 percent fixed-rate mortgage with principal and interest paymen
1 answer:
Points are an upfront charge by the lender that is part of the price of a mortgage. Points are expressed as a percent of the loan amount, with 2 points being 2%. On a $400,000 loan,
solutions
Loan Amount $400,000
Loan Term (in months) 360 months
mortgage I mortgage II
Interest Rate 6.000% 5.750%
Points 0.00% 2.00%
Loan Payment Amount $2,398.20 $2,334.29
Costs Over 30 — Year Period
Points Paid in Cash
$0 $8,000
Monthly Costs -
Principal and Interest $863,348 $840,340
Lost Interest
On Points $0 $0
On Monthly Costs $0 $0
Total Costs $863,348 $848,340
Reduction in Loan Balance $400,000 $400,000
Total Cost Offsets $400,000 $400,000
Cost Net of Offsets $463,348 $448,340
Conclusions - Based on a 30 Year Holding Period
Over the next 30 years the High Interest / Low Points Loan Will Save You: $15,008
In Months, the Break-even Point Occurs in 1 months
In Years, the Break-even Point Occurs in 0.0833 years
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The amount lost by the person as interest over five years is $65
Explanation:
Given information's are
Amount = $300
years = Five years
Interest rate = 4 percent
If that person deposits $300 in to a saving account which gives 4% interest per year will get $365 after completion of five year period as follows..,
Usually bank follows compound interest method for five years holding of deposits in the savings accounts.The compound interest formula is ((P×(1+i)^n) - P),
where
P is the principal,
i is the annual interest rate, and
n is the number of periods
Interest = $300 ×(1+0.04)5 - $300 = $65
So.,the amount lost by the person as interest over five years is $65