SOLUTION: Kim Barnes bought a new home for 250,000. She made a 30% down payment and got a 4% 20 year loan. Amortize this loan over the first 2 months. Kim would be able to get a mortgage a

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Question 934252: Kim Barnes bought a new home for 250,000. She made a 30% down payment and got a 4% 20 year loan. Amortize this loan over the first 2 months. Kim would be able to get a mortgage at 3.5%. Is it worth it for Kim to pay one point for the lower interest rate? Support your answer with numbers.
Answer by ptfile(81) About Me  (Show Source):
You can put this solution on YOUR website!
Let A = Periodic amount
    R = Interest rate
    N = Number of intervals
    P = Principal
    T = Duration of the loan

Downpayment
(250000)(.30)=75000
250000-75,000=175000

A=+P%28%28%28r%2Fn%29%281%2Br%2Fn%29%5E%28nt%29%29%2F%28%281%2Br%2Fn%29%5E%28nt%29-1%29%29


A=175000%28%28.003333333%29%282.22258191%29%2F%28%282.22258191%29-1%29%29
A=175000%28.007408606%2F1.22258191%29
A=175000%28.006059803%29
A=1060.47

Payment Amount Interest Principal Balance
0                                 175000
1       1060.47 583.33   477.13   174522.87
2       1060.47 581.74   478.72   174044.15

A=+P%28%28%28r%2Fn%29%281%2Br%2Fn%29%5E%28nt%29%29%2F%28%281%2Br%2Fn%29%5E%28nt%29-1%29%29


A=175000%28%28.002916667%29%282.011702195%29%2F%28%282.011702195%29-1%29%29
A=175000%28.005867465%2F1.011702195%29
A=175000%28.005799597%29
A=1014.93

Payment Amount Interest Principal Balance
0                                 175000
1       1014.93 510.42    504.51  174495.49
2       1014.93 508.95    505.98  173989.50

It would be beneficial for Kim to get a lower interest rate for her mortgage.