You and your lovely and/or handsome spouse have decided the purchase a new home with a loan for $260,000. The mortgage you chose offers a contract rate of 4.5%, a maturity of 30 years, and requires the payment of 3 points.
What is the amount you must pay in points?
What is the annual effective cost of borrowing for this loan if you make your scheduled payments for the full 30 years?
If you plan of moving into a different house after 5 years, what is the effective cost of borrowing?
Suppose that you find a mortgage offering the same basic terms and for the same amount, but offers a 5.25% rate and a $1500 rebate at closing. What is the effective cost of borrowing for this loan assuming that you plan to move into a new house after five years?