The table below shows a mortgage lender's interest rates and monthly payments for different credit scores.Mortgage loan amount: $375,000Length of the loan: 30 years Credit score Rate Monthly payment660 – 679 3.96% $1782680 – 699 3.86% $1760700 – 719 3.81% $1749720 – 739 3.74% $1735+740 3.62% $1709Isabel's credit score is 691. Chau's credit score is 754. Answer the following questions.(a)What interest rates will the lender offer Isabel and Chau?Isabel: %Chau: %(b)Who will have a lower monthly payment, and by how much?IsabelIsabel'smonthlypaymentwillbelowerby$.ChauChau'smonthlypaymentwillbelowerby$.(c)A more positive credit history usually results in a higher credit score. Which statement explains why it is important to establish a positive credit history?Mortgage lenders usually offer higher interest rates for higher credit scores.Mortgage lenders usually offer higher interest rates for lower credit scores.
Question
The table below shows a mortgage lender's interest rates and monthly payments for different credit scores.Mortgage loan amount: 1782680 – 699 3.86% 1749720 – 739 3.74% 1709Isabel's credit score is 691. Chau's credit score is 754. Answer the following questions.(a)What interest rates will the lender offer Isabel and Chau?Isabel: %Chau: %(b)Who will have a lower monthly payment, and by how much?IsabelIsabel'smonthlypaymentwillbelowerby.(c)A more positive credit history usually results in a higher credit score. Which statement explains why it is important to establish a positive credit history?Mortgage lenders usually offer higher interest rates for higher credit scores.Mortgage lenders usually offer higher interest rates for lower credit scores.
Solution
(a) The interest rates that the lender will offer Isabel and Chau are based on their credit scores. Isabel's credit score is 691, which falls in the 680 - 699 range. Therefore, the lender will offer her an interest rate of 3.86%. Chau's credit score is 754, which is above 740. Therefore, the lender will offer him an interest rate of 3.62%.
Isabel: 3.86% Chau: 3.62%
(b) The monthly payment is also based on the credit score. Isabel's monthly payment, based on her credit score, will be 1709. Therefore, Chau will have a lower monthly payment. The difference between their monthly payments is 1709 = $51.
Chau's monthly payment will be lower by $51.
(c) It is important to establish a positive credit history because mortgage lenders usually offer lower interest rates for higher credit scores. A lower interest rate can significantly reduce the amount of money you have to pay back over the life of the loan. Therefore, a positive credit history can save you a lot of money when you want to buy a house or make other large purchases.
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