Suppose our business plans to take out a 5-year loan for $100,000. The after-tax

Question

Suppose our business plans to take out a 5-year loan for $100,000. The after-tax MARR is 10%, the tax rate is 40%, and the loan interest rate is 15%. Rank the following loan options using present worth analysis:

Method 1: Balloon loan (pay only interest each year, pay all of the principle at the end)

Method 2: Fixed principal amount (pay fixed amount of principal each year, pay interest in full each year)

Method 3: Conventional load (fixed payment size)

Method 4: Pay nothing until the end

Could you show how you got your answer and why its better?

Explanation / Answer

I think method 2 is better when compared to other 3 methods

One easy way to pay off your mortgage early, is to refinance your current loan. As of today, mortgage rates are at record lows so this may be the route you should take. An easy example of this is to refinance your current mortgage with 25 years remaining to a new 15 year loan. Granted, you

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