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Case Study #2

Data

You have decided on your dream house (well, at least your first house). In discussions with your mortgage broker, you have the choice between two $200,000 loans, both of which are amortized over thirty years. Loan A is for 6.0 percent with no points or loan origination fee, and loan B is for 5.75 percent with a $1,500 loan fees and one point.

Calculations

Assuming you plan to stay in the house for 30 years, which loan is more advantageous based on the Effective Interest Rate (EIR) and assuming annual payments?

Loan A $200,000 6.0% no points, no fees, 30 years
Loan B $200,000 5.75% 1 point, $1,500 fees, 30 years

 



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