You\'ve decided to buy a house that is valued at $1 million. You have $150,000 t
ID: 2730549 • Letter: Y
Question
You've decided to buy a house that is valued at $1 million. You have $150,000 to use as a down payment on the house, and you take out a mortgage for the rest. Your bank has approved your mortgage for the balance amount of $850,000 and is offering you a standard 30-year mortgage with 8% fixed nominal interest rate (called the annual percentage rate, or APR). According to this proposal, what will be your monthly mortgage payment? $6,237.24 $8,420.27 $9,667.72 $7,796.55 Your friends suggest that you take a 15-year mortgage, because a 30-year mortgage is too long, and you will lose a lot of money on interest. If your bank approves a 15-year, $850,000 loan at a fixed nominal interest rate of 8% (APR), what will be the difference in the monthly payment of the 15-year mortgage and 30-year mortgage? $3,111.90 $2,734.70 $2,168.90 $1,886.00 It is likely that you won't like the prospect of paying more money each month, but if you do take out a 15-year mortgage, you will make far fewer payments and will pay a lot less in interest. How much more total interest will you pay over the life of the loan if you take out a 30-year mortgage instead of a 15-year mortgage? $783,223.20 $1,080,848.02 $1,002,525.70 $924,203.38Explanation / Answer
Answer: Calculation of Monthly mortgage amount:
30-year: Number of months = 360, Interest rate = 8/12, PV = 850,000 PMT = $6237.24
Total payments = $6237.24 * 360 = $2245406.4, Principal = $850,000
Interest =Total payments-Principal
=2245406.4-850000
=$1395406.4
Answer: 15-year: No. of months = 180, Interest rate = 8/12, PV = 850,000 PMT = $8123.24
Difference in monthly payment=8123.24-6237.24
=$1886.00
Answer:
30-year: Number of months = 360, Interest rate = 8/12, PV = 850,000 PMT = $6237.24
Total payments = $6237.24 * 360 = $2245406.4, Principal = $850,000
Interest =Total payments-Principal
=2245406.4-850000
=$1395406.4
15-year: No. of months = 180, Interest rate = 8/12, PV = 850,000 PMT = $8123.24
Total payments = $8123.24 * 180 = $1462183.2 Principal = $850,000 Interest = $612183.2
Therefore, difference is:
=$1395406.4-$612183.2
=$783223.20
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