Question

Lenny and Lisa have obtained a 30-year, fixed-rate mortgage for $675250 with a 7.25% interest rate. They purchased 3 points and their rate is now 6.875%. Factoring in the cost of points, when is the break-even point on their mortgage?

Answer 1

Let's go ahead and list basic information first (what we know)
-Amount of Mortgage - $675,250
-3 discount points = 3% of mortgage value
-Rate of interest without points - 7.25%
-Length - 30 Years
-# of points - 3 points
-Rate of interest with points - 6.875%

In this case the amount paid would= 675250*3%= $20,257.5
Given this much, calculate the monthly payments with and without points, then subtract the two and you will calculate the break even point using the below formula:
BREAK EVEN= Cost of Discount points/ MONTHLY savings