Question

Consider the following pair of mortgage loan options for a ?$130 comma 000 mortgage. Which mortgage loan has the larger total cost? (closing costs? + the amount paid for points? + total cost of? interest)? By how? much?

Mortgage? A: 20?-year fixed at 7.25?% with closing costs of ?$2400 and 1 point.

Mortgage? B: 20?-year fixed at 5.25?% with closing costs of ?$2400 and 2 points.

Choose the correct answer? below, and fill in the answer box to complete your choice.

A. Mortgage B has a larger total cost than mortgage A by ?$ .

B. Mortgage A has a larger total cost than mortgage B by ?$ ?(Round to the nearest dollar as? needed.)

Answer 1

		MORTGAGE A
	a	Loan amount	$130,000
		Interest Rate	7.25%
		Monthly interest=(7.25/12)%
		Number of years	20
		Number of months	240
	b	Monthly mortgage payment	$1,027	(Using PMT fnction of excelwith Rate=(7.25/12)%,Nper=240,PV=-130000)
	c=b*240	Total mortgage payment	$246,597
	d=c-a	Total Interest payment	$116,597
	e	Closing cost	$2,400
	f	Payment for point	$           1,300	(0.01*130000)
	g=d+e+f	TotalCost	$120,297
		MORTGAGE B
	a	Loan amount	$130,000
		Interest Rate	5.25%
		Monthly interest=(5.25/12)%
		Number of years	20
		Number of months	240
	b	Monthly mortgage payment	$876	(Using PMT fnction of excelwith Rate=(5.25/12)%,Nper=240,PV=-130000)
	c=b*240	Total mortgage payment	$210,239
	d=c-a	Total Interest payment	$80,239
	e	Closing cost	$2,400
	f	Payment for point	$           2,600	(0.02*130000)
	g=d+e+f	TotalCost	$85,239
		Difference in totalCost	$35,058	(120297-85239)
		Answer:
		B. Mortgage A has a larger total cost than mortgage B by	$35,058