A person getting a mortgage to buy a home or property may choose to reduce the interest rate by paying additional cash up front.
Parameters:
(1) total amount of the mortgage
(2) initial fixed interest rate for the mortgage
(3) reduction in rate associated with 1 (percentage) point of the mortgage amount
(4) amount of money that the consumer wants to commit
one percentage point on the loan =
= 0.01 * (total amount)
number of points that the consumer wants to commit =
= (amount of money to commit) / (one percentage point of mortgage)
final interest rate =
= (original interest rate) - ((number of points) * (reduction in rate per point))
