The Martinezes are planning to refinance their home (assuming that there are no

Question

The Martinezes are planning to refinance their home (assuming that there are no additional finance charges). The outstanding balance on their original loan is $125,000. Their finance company has offered them two options:

Option A: A fixed-rate mortgage at an interest rate of 6.5% per year compounded monthly, payable over a 25-year period in 300 equal monthly installments.

Option B: A fixed-rate mortgage at an interest rate of 6.25% per year compounded monthly, payable over a 15-year period in 180 equal monthly installments.

(a) Find the monthly payment required to amortize each of these loans over the life of the loan. (Round your answers to the nearest cent.)
Option A: $
Option B: $

(b) How much interest would the Martinezes save if they chose the 15-year mortgage instead of the 25-year mortgage?
Use the rounded monthly payment values from part (a). (Round your answer to the nearest cent.)
$

Explanation / Answer

Loan = $125,000
(A)
Option A:
Monthly interest = 6.5%/12
Nper = 300
Monthly Payments =PMT(0.065/12,300,125000)

=

($844.01)

(Using excel)

Option B:
Monthly interest = 6.25%/12
Nper = 180
Monthly Payments =PMT(0.0625/12,180,125000)

=

($1,071.78)

(Using excel)

(B)
Option A: Total paid = $844.01*300 = $253,203
Option B: Total paid = $1,071.78*180 = $192920.40
Savings =$253,203- $192920.40= $60282.6

($844.01)

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