Should Wally Bee Pay for Lower Interest Rate on his Mortgage?
Calculating the Cost of Points
Wally's Loan Amount: After the $60,000 down payment, Wally's loan amount is $540,000.
Offered Interest Rate: The bank is offering to lower the interest rate from 6% to 5.25% if Wally pays 2 3/8 points.
Calculating Points Cost: To find the cost of the points, we need to calculate 2 3/8 percent of $540,000.
Converting Mixed Number to Improper Fraction: 2 3/8 is equivalent to 19/8.
Calculating Points: Multiply 19/8 by $540,000 => $256,125.
Therefore, the points will cost Wally $14,250. Considering the long-term savings from the lower interest rate, it may be beneficial for Wally to pay the points and secure a lower rate for the remaining duration of his mortgage.