Option A: Get a 15 years mortgage for 110,000 at 3 percent annual rate. Option B

Question

Option A: Get a 15 years mortgage for 110,000 at 3 percent annual rate.

Option B: Get a 30 year mortgage for 110,000 at 4 percent.

A) Assuming that you hold the mortgage till until paid in full, what is present value of cash you save by going with option A. Assume that the discount rate of 3.5 percent?

B) Let us say you hold the mortgage for only 4 years. What is the present value of cash you saved by going with option A. Again, assume the discount rate is 3.5 percent, when calculating the present value.

Explanation / Answer

A) Assuming that you hold the mortgage till until paid in full, what is present value of cash you save by going with option A. Assume that the discount rate of 3.5 percent?

pv = (rate,nper,pmt,[fv],0)

rate = 3.5%

nper = 15

pv =$65,657.97

B) Let us say you hold the mortgage for only 4 years. What is the present value of cash you saved by going with option A. Again, assume the discount rate is 3.5 percent, when calculating the present value.

pv = (rate,nper,pmt,[fv],0)

rate = 3.5%

nper = 4

pv =$95,858.65

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