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You are purchasing a new home and need to borrow $250 000 from a mortgage lender. The mortgage lender quotes you a rate of 6.25% APR for a 30-year fixed rate mortgage. The mortgage lender also tells you that if you are willing to pay two points, they can offer you a lower rate of 6.0% APR for a 30-year fixed rate mortgage. One point is equal to 1% of the loan value. So if you take the lower rate and pay the points, you will need to borrow an additional $5 000 to cover points you are paying the lender.
-Assuming you pay the points and borrow from the mortgage lender at 6.00%, then your monthly mortgage payment (with payments made at the end of the month)will be closest to:
A)$1 570
B)$1 540
C)$1 530
D)$1 500

Question

Quizplus · Accepted Answer

To find the monthly mortgage payment, you can use the formula for a fixed-rate mortgage, which is often represented as $PMT = P \times \frac{r(1+r)^n}{(1+r)^n - 1}$, where $PMT$ is the monthly payment, $P$ is the principal amount, $r$ is the monthly interest rate (annual rate divided by 12), and $n$ is the total number of payments (months). In this case, $P = \$255,000$ (the original loan plus the $5,000 for points), $r = 0.06 / 12 = 0.005$, and $n = 30 \times 12 = 360$. Plugging these values into the formula gives a monthly payment closest to \$1,530.

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