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:

Locus of Control

A psychological concept that refers to individuals' beliefs about the extent to which the outcomes of their actions are under their own control (internal locus) or beyond their control (external locus).

Concept Comparison

Refers to the process of evaluating similarities and differences between ideas, theories, or constructs within a particular field of study.

Fourth Stage

Refers to a phase or level in a series of stages, often used in the context of developmental processes or sequential steps in a system.

Crisis Resolution

A process in psychology or management where a crisis is addressed and solved through various methods, leading to a reduction in stress and conflict.