Answer:
Break even point = 5.90 years
Explanation:
given data
loan amount = $250,000
time N = 30 year = 360 months
rate I/y = 6 % = 6% / 12
rate I/y = 5.5 % = 5.5% / 12
solution
we get here PMT for both Loan rate 5.5% and 6% is
for loan A
PMT( monthly rate, time period, loan amount )
PMT( 6/12 , 360 , -$250,000 )
PMT = $1498.88 ...........1
and for loan B
PMT( monthly rate, time period, loan amount )
PMT( 5.5/12 , 360 , -$250,000 )
PMT = $1,419.47 ...........2
so here saving is
Savings = Loan A – Loan B
Savings = $1498.88 - $1,419.47
Savings = $79.40
Point will be = $250000 × 2.25%
points = $5625
so here Break even point will be
Break even point = points ÷ savings ...........3
Break even point = 5625 ÷ 79.40
Break even point =70.84 month
Break even point = 70.84 ÷ 12
Break even point = 5.90 years
