In: Accounting
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?
Option1 requires the annual payments of $24,712
Option 2 requires the annual payments of $21,322
Savings in annual payments is $3,390