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You are looking to take out a 300K USD mortgage for 30 years. After shopping around,...

You are looking to take out a 300K USD mortgage for 30 years. After shopping around, you have two offers on the table:

Bank 1: 2.93% interest rate, up front fees of 3,918 USD
Bank 2: 3.41% interest rate, up front fees of 2,944 USD

Notice the tradeoff between the rate and the fees: you can pay a higher up front fee in exchange for a lower interest rate.

How long (at a minimum) must you anticipate staying in this house, in order for the loan from Bank 1 to be better for you? (To make this ballpark estimate, ignore time value of money for simplicity.)

Hint: find the difference between the monthly payments for the two mortgages. See how long it takes to 'make up' for the extra up front fee on the lower-rate loan.

Solutions

Expert Solution

Please refer to below spreadsheet for calculation and answer. Cell reference also provided.

Cell reference -

jeff jeffy answered 2 years ago
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