(a) Suppose you had to choose between a 11% 30-year mortgage or an 10.5% mortgage with...

(a) Suppose you had to choose between a 11% 30-year mortgage or an 10.5% mortgage with 2 discount points. Which should you choose? Assume you wished to borrow $100,000.

(b) What are the discount points, and why do some mortgage borrowers to pay them?

Expert Solution

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

Cell reference -

(b)

Discount points are fees paid by borrower to lender at closing to reduce the interest rate on mortgage. One discount point equals to the one percentage of loan amount.

Some mortgage borrowers pay discount points ( as an up-front fee) to reduce the mortgage monthly payments.

jeff jeffy answered 1 year ago

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