A5 Mortgage Points Problem
Points Table Provident Funding [per $100,000 borrowed 10 year loan as of 97
2010
Rate
Pts/Credit % Pts/Credit $
3.250 % 2.625 % $2,625.00
3.375 % 1.625 % $1,625.00
3.500 % 0.625 % $625.00
3.580 %
0.00 %
$0.00
3.625 % 0.375 % ($375.00)
3.750 % 1.500 % ($1,500.00)
3.875 % 2.125 % ($2,125.00)
4.000 % 2.500 % ($2,500.00)
4.125 % 2.625 % ($2,625.00)
Question:
Your mortgage balance is currently $117,000 with 10 years remaining on the
original 30 year contract at 6.75%.
a) Determine the original principal?
$207,130.14
First find PMT by looking at the 20 year mark going forward then use the PMT, I, and
N=30 to find the PV
You have decided to refinance because the current market mortgage rate is now
__
3.58
__%. As part of the refinance package, you are offered the option to "buy down"
the market % mortgage rate by paying points. One point equals 1% of the principle—for
each % drop in interest rates according to the above table.
(b) Determine the new monthly payment associated with a refinance at the
market rate
and at the "buy down" of your rate to 3.375%
Market rate: $1,161.35, Buydown rate: $1,150.13
(c) Buying down has a cost. Determine that cost to buy down. Determine how many
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 Fall '10
 JerryNelson
 YTM, yearly coupon payment

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