Question

Rea and Archie are financing 136,000 to purchase and condominium. They obtain a 15 year fixed-rate loan with a rate of 5.25%. They have been given the option of purchasing up to four points lower their rate to 5.02. How much will the four points cost them?

Answer 1

Define "Cost". Is it this:

(Lifetime Payout at 5.02% + 4 Points) - (Lifetime Payout @ 5.25%)?

Answer 2

each point costs 1% of loan amount

Answer 3

since they're buying 4 points -- that makes it 4% of loan amount

Answer 4

simply calculate 4% of loan amount

Answer 5

... unless some other definition is intended.

Answer 6

0.04*136000 = 5440

Answer 7

Yes, that is how to calculate the price of the arrangement, but then there is the decreased interest rate. Should it be included in the cost or not?