Mary and Paul are negotiating a mortgage loan with an S&L. The house has a sales...

Mary and Paul are negotiating a mortgage loan with an S&L. The house has a sales price of $360,000. Mary and Paul agree to put 20% down. The S&L presents to them two alternative financing options:

Option 1

Option 2

30-year

7.0% fixed rate

paying no points

30-year

6.8% fixed rate

paying 1.8 points

Assume Mary and Paul plan on living in the house for 30 years. What is the Net Present Value of their savings?

Solutions

Expert Solution

Option1 requires the annual payments of $24,712

Option 2 requires the annual payments of $21,322

Savings in annual payments is $3,390

ekkarill92 answered 1 year ago

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