Question

Use to determine the regular payment amount, rounded to the nearest collar. Consider the Toulowing pair or mortgage loan options for a $115,000 mortgage. Which mortgage loan has the larger total cost (closing costs + the amount paid for points + total cost of interest)? By how much? Mortgage A 30-year fixed at 12.25% with closing costs of $2600 and 1 point. Mortgage B: 30-year fixed at 11.25% with closing costs of $2600 and 4 points Choose the correct answer below, and fill in the answer box to complete your choice. (Round to the nearest dollar as needed.) O A. Mortgage B has a larger total cost than mortgage Abys B. Mortgage A has a larger total cost than mortgage B by $

Answer 1

Mortgage A :
Mortgage Amount : $115,000
Interest Rate : 12.25%
Tenure : 30 years

Closing cost : $2,600
amount of point : 1% * $115,000 = $1,150
Monthly payment = Mortgage amount * rate per month * [((1 + rate per month) ^ number of payment)/((1 + rate per month)^number of payment - 1)]
= $115,000 * (0.1225/12)*[(1 + 0.1225/12)^360)/((1 + 0.1225/12)*360 -1] = $1,205
Total cost of interest = closing cost + (number of payments * monthly payment - mortgage amount) + total amount for points
= $2,600 + (360 * $1,205 - $115,000) + $1,150 = $322,550

Mortgage B :
Mortgage Amount : $115,000
Interest Rate : 11.25%
Tenure : 30 years

Closing cost : $2,600
amount of point : 4% * $115,000 = $4,600
Monthly payment = Mortgage amount * rate per month * [((1 + rate per month) ^ number of payment)/((1 + rate per month)^number of payment - 1)]
= $115,000 * (0.1125/12)*[(1 + 0.1125/12)^360)/((1 + 0.1125/12)*360 -1] = $1,117
Total cost of interest = closing cost + (number of payments * monthly payment - mortgage amount) + total amount for points
= $2,600 + (360 * $1,117 - $115,000) + $4,600 = $294,320

Mortgage A has a larger total cost than Mortgage B by $28,230/-