You Are Purchasing a New Home and Need to Borrow

question 23

Essay

You are purchasing a new home and need to borrow $325,000 from a mortgage lender.The mortgage lender quotes you a rate of 6.5% APR for a 30-year fixed rate mortgage (with payments made at the end of each month).The mortgage lender also tells you that if you are willing to pay 1 point,they can offer you a lower rate of 6.25% APR for a 30-year fixed rate mortgage.One point is equal to 1% of the loan value.So if you take the lower rate and pay the points,you will need to borrow an additional $3250 to cover points you are paying the lender.Assuming that you do not intend to prepay your mortgage (pay off your mortgage early),are you better off paying the 1 point and borrowing at 6.25% APR or just taking out the loan at 6.5% without any points?

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Definitions:

Arousal Levels

The state of being physiologically alert, awake, and attentive, which can be influenced by physical, emotional, and cognitive factors.

Homeostasis

The process by which living organisms maintain a stable internal environment, necessary for survival and optimal functioning.

Temperature Fluctuations

Variations in temperature over a period of time, which can be natural or induced by human activity.

Shivering

An involuntary response to cold, consisting of muscle tremors that generate heat and increase body temperature.