Question

Lucy is financing $370,000 to purchase a house. How much money will she save over the life of a 30-year, fixed-rate loan by buying 3 points with a rate of 6.175% instead of not buying points with a rate of 6.55%?

Answer 1

Lucy would save $114.
Step 1: Multiply 6.175 x 30 = 185.25
Step 2: Divide 370,000/185.25 = 1,997
Step 3: Repeat Steps 1&2 but with (6.55 x 30) and divide 370,000/196.5 = 1,883.
Step 4: Subtract 1,997 - 1,883 = 114
Step 5: She will save $114 with points versus without.