The Mathematics of Money

Copyright © 2008, The McGraw-Hill Companies, Inc.

24. Will and Stacey are selling their house and moving to a new city. In the time that they’ve owned their current house,
    housing prices have risen a lot, and after paying their current mortgage off they will be left with $72,853. Their new
    house costs $279,800, and they want to make a 20% down payment. Property taxes come to $6,825 per year, and
    homeowners’ insurance will cost them $1,809. Their new loan has no closing costs. Do they have enough from the sale
    of the old house to cover the up-front costs?


25. In the examples we have seen in this section, the up-front expenses often add up to a very large amount of money. True
    or false: In order to have any hope of buying a house, you must have a large amount of money in savings to pay for
    closing costs, prepaids, down payments, etc.

G. Up-Front Expenses—Points

26. Suppose you take out a mortgage for $219,836 with 2 points. How much do these points cost you?


27. Suppose you buy a townhouse for $109,000, and make a 5% down payment. If you take out a mortgage that requires
    paying 1¾ points, how much will you pay for the points?


28. Suppose that Will and Stacey’s (from Exercise 24) lender suggests that they could save quite a bit on their loan if they
    paid 2½ points. Do they have enough from their old house to pay these points in addition to the up-front costs?


29. Heidi is looking for a mortgage to buy a condominium. The condo costs $122,950 and she will make a 3% down
    payment. She is considering two different choices for a 30-year fi xed rate loan:

Points Interest Rate

0 7¾%

1¾ 67 ⁄ 8 %

a. Find the up-front cost of the points if she chooses that option.

b. Find her monthly mortgage payment with each option.

c. How much would she save over 30 years by paying points, assuming that she keeps the loan for the full 30 years.

d. Find the payback period for paying points.

30. You are considering two different options for a 15-year fi xed-rate mortgage of $144,315:

Points Interest Rate

None 6.85%

1.5 6.04%

a. How much could you save over the full 15-year term by paying points?

b. What would the payback period be for these points?

H. Grab Bag

31. Jack and Diane want to buy a house for $83,000. They are required to make a 5% down payment. Property taxes are
    $2,500 per year, and homeowners’ insurance is $400 per year. Closing costs for their mortgage loan are $2,800. How
    much money do they need up front to buy the house?

Exercises 10.2 447