Larry Davis borrows $76,000 at 12 percent interest toward the purchase of a home
ID: 2657805 • Letter: L
Question
Larry Davis borrows $76,000 at 12 percent interest toward the purchase of a home. His mortgage is for 30 years. Use Appendix D for an approximate answer, but calculate your final answer using the formula and financial calculator methods. a. How much will his annual payments be?
How much interest will he pay over the life of the loan?
How much should he be willing to pay to get out of a 12 percent mortgage and into a 10 percent mortgage with 30 years remaining on the mortgage? Assume current interest rates are 10 percent. Carefully consider the time value of money. Disregard taxes.
Explanation / Answer
Answer A) Loan amortisation at 12% for 30*12= 360 months for the borrowing of $76000
using formula in excel = PMT(12%/12,360,-76000,0,1)
His annual payments be = 781.75 * 12 = $ 9381
Answer B)
The complete calculation of loan will be as below:
Total Interest paid = $ 205428.41
Answer ) in case of 10 % loan calculation will be
Annual payment = 12 * 666.95 = $8003.45
Per year Saving to switch in 10% from 12% = $ 9381 - $8003.45=$1377.55
Total Benefit = PV ( $1377.55 for 30 years @ 10%)
Benefit = $12985.10 , as calculated below
Loan Principle Amount 76,000.00 Annual Interest Rate 12.00% Loan Period (in months) 360.00 Original Repayment Amount(monthly) 781.75Related Questions
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