Question

Determine the cost of the points and the new interest rate for each loan amount and interest rate. Assume each point costs 1% of the loan amount

A) 280,000 original apr 4.18%, 1 point with a 0.2% discount

B) 350,000 original apr 2.95%, 2 points with a 0.275% discount per point

C) 600,000 original apr 4.6%, 3points with a 0.225% discount per point

D) 450,000 original apr 3.75%, 1 point with a 0.3% discount

E) 2,000,000 original apr 3.55%, 2 points with a 0.235% discount per point

Answer 1

Explanation:

A) For a loan amount of $280,000, one point would cost $2,800 (1% of $280,000). With one point, the interest rate would be reduced by 0.2%, so the new interest rate would be:

4.18% - 0.2% = 3.98%

B) For a loan amount of $350,000, two points would cost $7,000 (2 x 1% of $350,000). With two points, the interest rate would be reduced by 0.275% per point, so the new interest rate would be:

2 x 0.275% = 0.55%

2.95% - 0.55% = 2.40%

C) For a loan amount of $600,000, three points would cost $18,000 (3 x 1% of $600,000). With three points, the interest rate would be reduced by 0.225% per point, so the new interest rate would be:

3 x 0.225% = 0.675%

4.6% - 0.675% = 3.925%

D) For a loan amount of $450,000, one point would cost $4,500 (1% of $450,000). With one point, the interest rate would be reduced by 0.3%, so the new interest rate would be:

3.75% - 0.3% = 3.45%

E) For a loan amount of $2,000,000, two points would cost $40,000 (2 x 1% of $2,000,000). With two points, the interest rate would be reduced by 0.235% per point, so the new interest rate would be:

2 x 0.235% = 0.47%

3.55% - 0.47% = 3.08%

Therefore, the cost of the points and the new interest rate for each loan amount and interest rate are as follows:

A) Cost of point: $2,800; New interest rate: 3.98%

B) Cost of points: $7,000; New interest rate: 2.40%

C) Cost of points: $18,000; New interest rate: 3.925%

D) Cost of point: $4,500; New interest rate: 3.45%

E) Cost of points: $40,000; New interest rate: 3.08%