Mortgages

Question 66 • 26-27 Ignite Technical Math-Financial Math - MA2007

In which of the following cases would you most likely buy a point when closing on a home loan?

Answer

The monthly payment is reduced by $8 and you plan to sell the home at the end of 3 years.

The monthly payment is reduced by $10 and you plan to sell the home at the end of 4 years.

The monthly payment is reduced by $12 and you plan to sell the home at the end of 5 years.

The monthly payment is reduced by $14 and you plan to sell the home at the end of 7 years.

Explanation

Buying a point makes sense when the payment savings add up over time and exceed the upfront cost. In choice D, the $14 monthly reduction lasts 7 years, saving $14 × 84 months = $1,176. That is the greatest total savings among the choices, and the longer time in the home gives you more opportunity to benefit.

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