Figure out the annual payments for a 20-year mortgage on a home where a buyer finances 90% of the home’s value (e.g., they pay 10% as a down payment) for a $185,000 home at an interest rate of 3.5%. Then, calculate what the annual payment would be if the buyer received an interest rate of 4.5%.
Finally, discuss which option you would choose if you were given the following choices and what might influence your decision: Option 1: You can purchase the house at a 3.5% interest rate, but you would need to pay an additional $5,000 upfront for the bank to give you the rate. (NOTE--this is commonly called “buying points” in real estate) OR Option 2: You can purchase the house at a 4.5% interest rate and would not have to pay any additional money upfront.