Home Mortgage

Your client is in need of a 20 year, $100,000, monthly payment, mortgage. Bank A is offering no fees, no points, and 4% annual rate. Bank B offers 3.6% annual interest with 2 points. The cost of the points would be added to the legal amount of the mortgage. Your client indicates that she will likely sell the home after 3 years. Which is the better deal, Bank A or Bank B? Back your recommendation with an effective rate calculation of the Bank B rate if:

Your client stays with the mortgage for the full 20 years. Show all inputs for calculations.

Your client pays of the mortgage after 3 years. Show all inputs for calculations.