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:

Hierarchically Structured

Organized in a way where individuals or groups are ranked one above the other according to status or authority.

Division Of Labor

The allocation of distinct tasks to different people or groups in a social or economic context to increase productivity.

Interlocking Directorate

Organizational linkages created when the same people sit on the boards of directors of a number of different corporations.

Power Elite Perspective

A view that a small group of people, drawn from the political, corporate, and military sectors, holds the majority of power within a society.