You are buying a house and the mortgage company offers to let you pay a “point” (1% of the total amount of the loan) to reduce your APR from 6.5% to 6.25% on your $400,000, 30-year mortgage with monthly payments. If you plan to be in the house for at least five years, should you do it?
What is the original payment, new payment, difference, present value of the difference, original loan balance in 5 years, new loan balance in 5 years, difference in 5 years, present value of difference, cost of point, and the net benefit (cost)?