Jasper Is Looking to Purchase a New Home for $260,000

question 47

Essay

Jasper is looking to purchase a new home for $260,000. He is paying $52,000 as a down payment on the home and financing the remaining $208,000 with a loan secured by the home. He has the option of (1)paying no discount points on the loan and paying interest at 6.9 percent or (2)paying one discount point on the loan and paying interest of 5.9 percent on the loan. Both options require Jasper to make interest-only payments for the first five years of the loan and to pay the loan principal over the 25 years after that (it is a 30-year loan). Jasper itemizes deductions irrespective of any interest expense he may pay. Jasper's marginal ordinary income tax rate is 32 percent. What is Jasper's break-even point in years? (For simplicity, ignore time value of money concerns.)

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Definitions:

Dispositional Attributions

The tendency to attribute people's behaviors to their internal qualities rather than to situational factors.

Admirable Actions

Behaviors or deeds that are commendable or worthy of admiration.

Shameful Actions

Behaviors that an individual feels a deep sense of shame or guilt about, often due to societal or personal standards of morality and ethics.

Fundamental Attribution Error

The tendency for observers, when analyzing another’s behavior, to underestimate the impact of the situation and to overestimate the impact of personal disposition.