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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 $5 000 to cover points you are paying the lender.
-Assuming you do not pay the points and borrow from the mortgage lender at 6.25%, then your monthly mortgage payment (with payments made at the end of the month)will be closest to:
A)$1 540
B)$1 500
C)$1 570
D)$1 530

Question

Quizplus · Accepted Answer

To calculate the monthly mortgage payment, we can use the formula: 
M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1]

Where M is the monthly payment, P is the principal (the amount borrowed), i is the monthly interest rate (6.25%/12 = 0.00521), and n is the number of payments (30 years * 12 months = 360).

Using this formula and plugging in the values, we get:

M = 250000 [ 0.00521(1 + 0.00521)^360 ] / [ (1 + 0.00521)^360 – 1]
M ≈ $1 539.99

Therefore, the closest answer is A) $1 540.

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