You Are Purchasing a New Home and Need to Borrow

question 27

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 one 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 $3,250 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 one point and borrowing at 6.25% APR or just taking out the loan at 6.5% without any points?

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Definitions:

Interaction Analysis

Research that seeks to document and understand group roles and interactions among members of a group.

Group Interact

The dynamic and communication patterns observed within a group of individuals when they engage or work together.

Disambiguation

The process in content analysis of assigning a word the most appropriate meaning out of all possible meanings.

Hypothesis

A testable statement about the relationships one expects to find among variables of interest. A two-tailed test predicts relationships between two variables but does not specify the direction of the relationship. A one-tailed test specifies the direction of relationships between variables. Null hypotheses specify that there is no relationship between variables.