1. You have decided to purchase a house in livable, lovable Lodi that is priced at $360,000. You decided to put $80,000 as a down payment and borrow $280,000 from the bank. The mortgage loan officer at the bank provided you with several mortgage options which you want to evaluate very carefully. The options are (i) 30-year, conventional, fixed rate mortgage (FRM) at 4.8% per year with no discount point, (ii) 15-year, conventional 4.2% per year with no discount points, (iii). 30-year, conventional, fixed rate mortgage at 4.5% with one discount point, and (iv) biweekly mortgage at 4.8% per year (under this option, mortgage payment will be exactly one-half of the monthly payment associated with the 30-year FRM at 4.8% per year).
(a) Please determine the monthly mortgage payments for the options (i) and (ii). If you plan to repay the remaining mortgage balance after 12 years of payments under option (i), how much would you have to pay at that time? How much interest would have to pay in total if you decided to live in this house for 12 years? What would be your answers for option (ii)?
(b) How long (in years) would it take for you to pay off the $280,000 mortgage if you wish to make payments biweekly in accordance with option (iv)?
(c) Assume you will choose option (i). If you wish to pay an additional $200 per month, how long would it take for you to pay off the $280,000 mortgage?
(d) How long do you have to stay in this house in order for the option (iii) to be better than option (i)?