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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 2 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 don't pay the points and borrow from the mortgage lender at 6.25%,then your monthly mortgage payment (with payments made at the end of the month)will be closest to:
A) $1,570
B) $1,530
C) $1,540
D) $1,500

Question

Quizplus · Accepted Answer

C) First we need the monthly interest rate = APR / k = .0625 / 12 = .005208 or .5208%.
Now:
PV = 250,000 (no points)
I = .5208
FV = 0
N = 360 (30 years × 12 months)
Compute PMT = $1,539.29

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