Use the information for the question(s) below.
You are purchasing a new home and need to borrow $250,000 from a mortgage lender. The mortgage lender quotes you a
rate of 6.25% APR for a 30-year fixed rate mortgage. The mortgage lender also tells you that if you are willing to pay two
points, they can offer you a lower rate of 6.0% 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 $5000 to cover points you are
paying the lender.
-Assuming you pay the points and borrow from the mortgage lender at 6.00%, then your monthly mortgage payment (with payments made at the end of the month) will be closest to:

Question

Quizplus · Accepted Answer

To find the monthly mortgage payment, we use the following formula: 
M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1], 
where M is the monthly payment, P is the principal (loan amount), i is the monthly interest rate, and n is the number of months (30 years = 360 months).
At 6.00% APR, the monthly interest rate is 6.00% / 12 = 0.5%.
Without paying points: 
Principal = $250,000
Monthly interest rate = 0.5%
Number of months = 360
M = $1,498.88
With paying points: 
Principal = $255,000 ($250,000 + $5,000 for points)
Monthly interest rate = 0.5%
Number of months = 360
M = $1,529.03
Therefore, the closest answer is C) $1530.

Use the Information for the Question(s) Below