Question

Value of the house 300,000. You are using a 30-year mortgage. Also, you are putting down 20%.

You have two options:

a. Mortgage rate of 3.5% with no points.

b. Mortgage rate of 3.35% and 1.5 points.

Which option should you choose?

Answer 1

I will Choose the Option 2.

Reason.

Currently the value of the house is 3,00,000. The mortage is for 30 years. And the value for this will be putting by 20%.

As I have choosen the option 2 the calculation can be done with calculation of the Future value and 20% amount keeping aside every year for the future purose.

Hence,

Future Value = Present Value*(1+r)^n

Future Value = 3,00,000*(1+3.35%)^30 as we are going to multiply the points in the value of the future amount.

The Future Value = 8,06,186.80

After Adding the Points With the Furture value the Amounnt is Rs.8,06,231.80.

And The amount which need to keep down is 20% of 3,00,000 for 30 Years is 18,00,000 lacks.

If we had choosen the Option one the amount of the Option is 8,42,038.

Hence, we can see that if wee had choosen the option 1 we had to pay more on the Mortgage.

According to the calculation done the Option 2 is the best option to Mortgage.