Harland just got his second major credit card, so his credit score rose from 671 to 711. According to the following table for a $150,000 mortgage, how much less per year would Harland have to pay on a $150,000 mortgage with the new credit score?
| FICO Score | Interest Rate | Monthly Payment |
| :---------- | :------------- | :-------------- |
| 720-850 | 5.59% | $860 |
| 700-719 | 5.71% | $872 |
| 675-699 | 6.25% | $924 |
| 620-674 | 7.40% | $1039 |
| 560-619 | 8.53% | $1157 |
| 500-559 | 9.29% | $1238 |
A. $872
B. $167
C. $1039
D. $2004
Answer (2)
Harland's monthly payment decreased from $1039 to $872 due to his improved credit score. This results in a monthly savings of $167 and an annual savings of $2004 on his mortgage. Therefore, Harland would pay $2004 less per year on his mortgage.
;
Determine the monthly payment with the old credit score: $1039 .
Determine the monthly payment with the new credit score: $872 .
Calculate the difference in monthly payments: $1039 − $872 = $167 .
Calculate the difference in yearly payments: $167 × 12 = $2004 .
Explanation
Monthly payment with old credit score First, we need to determine the monthly payment for Harland's old credit score of 671. According to the table, a credit score between 620 and 674 corresponds to a monthly payment of $1039 .
Monthly payment with new credit score Next, we determine the monthly payment for Harland's new credit score of 711. According to the table, a credit score between 700 and 719 corresponds to a monthly payment of $872 .
Difference in monthly payments Now, we calculate the difference in the monthly payments: $1039 − $872 = $167 . This is how much less Harland pays per month.
Difference in yearly payments To find the difference in yearly payments, we multiply the monthly difference by 12: $167 × 12 = $2004 . Therefore, Harland would pay $2004 less per year.
Final Answer The amount less per year that Harland would have to pay on a $150 , 000 mortgage with the new credit score is $2004 .
Examples
Imagine you're planning to buy a house and want to understand how your credit score affects your mortgage payments. This problem illustrates how a better credit score can lead to a lower interest rate, which translates to lower monthly and yearly payments. For instance, improving your credit score could save you $2004 per year on a $150 , 000 mortgage, allowing you to allocate those savings to other financial goals, such as investments or home improvements. Understanding these savings can motivate you to maintain or improve your credit score, leading to significant long-term financial benefits.
