Response to the following problem:
You plan to purchase a house for $175,000 using a 15-year mortgage obtained from your local bank. You will make a down payment of 25 percent of the purchase price and monthly payments. You will not pay off the mortgage early
a. Your bank offers you the following two options for payment:
Option 1: Mortgage rate of 5 percent and zero points.
Option 2: Mortgage rate of 4.75 percent and 2 points.
Which option should you choose?
b. Your bank offers you the following two options for payments:
Option 1: Mortgage rate of 4.85 percent and 2 points.
Option 2: Mortgage rate of 4.68 percent and 3 points.
Which option should you choose?