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:

Stimulus

An occurrence or condition that prompts a reaction in a living being.

Reminiscence Bump

The tendency for older adults to have increased recollection for events that occurred during their adolescence and early adulthood.

Memory Retrieval

The process of recalling or bringing into consciousness information or experiences stored in memory.

Youth

The period of life between childhood and adulthood; characterized by the development and maturation of the individual.