You Are Purchasing a New Home and Need to Borrow

Multiple Choice

You are purchasing a new home and need to borrow $260,000 from a mortgage lender. The mortgage lender quotes you a rate of 6.80% APR for a 30-year fixed rate mortgage. The mortgage lender also tells you that if you are willing to pay two points, they can offer you a lower rate of 6.50% APR for a 30-year fixed rate mortgage. One point is equal to 1% of the loan value. So if you take the lower rate and pay the points, you will need to borrow an additional $5200 to cover points you are paying the lender. Assuming you pay the points and borrow from the mortgage lender at 6.50%, then your monthly mortgage payment (with payments made at the end of the month) will be closest to ________.

A) $1844
B) $1676
C) $2011
D) $2347