A) You decide to purchase a home that costs $140,000. If you make a down payment

Question

A)     You decide to purchase a home that costs $140,000. If you make a down payment of $20,000 and borrow the rest at a 4.25% 30-year mortgage, calculate your monthly payment.

B)      Now recalculate the monthly payment if you had to borrow at 9.5% instead of 4.25%.

C)      Assume that you plan to move after four years. In order to do so, you need to pay off the remaining balance on your mortgage (the present value of your remaining payments). Calculate the payoff value for both the 4.25% mortgage and the 9.5% mortgage.

D)     For each mortgage (4.25% and 9.5%) calculate

The total payments made over the four-year period

The amount that went to pay principal

The amount that went to pay interest (hint: principal and interest should add up to total payments made).

Please show me the calculations for this!

Explanation / Answer

A.

Present Value (PV) = 140000-20000 = 120,000.

Nper = 30*12 = 360.

Rate = 4.25%/12

Compute the monthly payment using excel function.

Pmt = Pmt(Rate,Nper,Pv,FV) = PMt(4.25%/12,360,-120000,0) = $590.33.

Therefore, the monthly payment is $590.33.

B.

Present Value (PV) = 140000-20000 = 120,000.

Nper = 30*12 = 360.

Rate = 9.5%/12

Compute the monthly payment using excel function.

Pmt = Pmt(Rate,Nper,Pv,FV) = PMt(9.5%/12,360,-120000,0) = $1009.03.

Therefore, the monthly payment is $1009.03.

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