Evan is borrowing $130,000 to buy a home priced at $144,500, and wants to do a permanent buy-down on his interest rate. His loan officer informs him the buy-down will cost 3 1/2 points to reduce his rate from 5 1/2% to 5%.
How much will Evan have to pay at closing to do the buy-down?
Nevermind, I figured it out.
To calculate how much Evan will have to pay at closing to do the buy-down, we first need to determine the loan amount. The loan amount is the difference between the home price and the amount Evan is borrowing.
Loan amount = Home price - Borrowed amount
Loan amount = $144,500 - $130,000
Loan amount = $14,500
Next, we need to calculate the buy-down cost. The buy-down cost is a percentage of the loan amount, and in this case, it is 3 1/2 points. To convert points to a percentage, we need to divide the points by 100.
Buy-down cost (in percentage) = 3.5 points / 100
Buy-down cost (in percentage) = 0.035 (or 3.5%)
Now, we can calculate the actual buy-down cost by multiplying the loan amount by the buy-down cost percentage.
Buy-down cost = Loan amount * Buy-down cost (in percentage)
Buy-down cost = $14,500 * 0.035
Buy-down cost = $507.50
Therefore, Evan will have to pay $507.50 at closing to do the buy-down.