The Fritzes are buying a house that sells for $.196,000 The bank is requiring a minimum down payment of 10%. To obtain a 20-year mortgage at 14% interest, they must pay 2 points at the time of closing.
a) Determine the required down payment.
b) Determine the amount of the mortgage on the property with the % down payment.
c) Find the cost of points on the mortgage.
a) The required down payment is 10% of the house price, so:
0.10 x $196,000 = $19,600
b) The down payment reduces the amount of the mortgage. So, the mortgage amount is:
$196,000 - $19,600 = $176,400
c) Two points on the mortgage at a 14% interest rate means a fee of 2% of the mortgage amount. So:
0.02 x $176,400 = $3,528
The cost of the points is $3,528.
To find the required down payment, we start by calculating 10% of the house price:
Down payment = 10% * $196,000
Down payment = $19,600
Therefore, the required down payment is $19,600.
Next, to determine the mortgage amount with the given down payment percentage, we subtract the down payment from the house price:
Mortgage amount = House price - Down payment
Mortgage amount = $196,000 - $19,600
Mortgage amount = $176,400
So, the amount of the mortgage on the property with a 10% down payment is $176,400.
Now, let's calculate the cost of the points on the mortgage. The bank requires the payment of 2 points at the time of closing. One point is equal to 1% of the mortgage amount:
Cost of points = 2% * Mortgage amount
Cost of points = 2% * $176,400
Cost of points = 0.02 * $176,400
Cost of points = $3,528
Therefore, the cost of points on the mortgage is $3,528.