Problem 6.65 – Mortgage Points, Buy Down, Sell House Early

Fundamentals of Corporate Finance

Ross, Westerfield, and Jordan

13th Edition

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Difficulty – Hard

Determine the maximum number of points you would be willing to pay up front to buy down the interest rate on a 30-year fixed-rate mortgage with a specific loan amount and monthly payments, considering that you plan to live in the house for a certain number of years before selling it and paying off the remaining balance. Compare the mortgage options with their respective annual percentage rates, keeping in mind that a point on a loan is 1 percent of the loan value.

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