Question

Todd Foley is applying for a $100,000 mortgage. He can get a $600 monthly payment for principal and interest and no points, or a $520 monthly payment with 2 points? How many months will it take Todd to cover the cost of the discount points if he takes the lower monthly payment?

Answer 1

Number of months
(0.02×100,000)÷(600−520)
=25 months

Answer 2

Todd Foley is applying for a $100,000 mortgage.

As he gets 2 points, which means 2 % of 100000, this becomes:

$\frac{2}{100}*100000= 2000$

As Todd chooses the lower monthly payment of $520.

So, total money he will save each month = $600-520=80$

Hence, the number of months Todd will need to cover the cost of the discount points = $\frac{2000}{80}=25$ months

Hence, the answer is 25 months.