How much will his annual payments be? (Although home payments are usually on a m

Question

How much will his annual payments be? (Although home payments are usually on a monthly basis, we shall do our analysis on an annual basis for ease of computation. We get a reasonably accurate answer.)

  

  

How much should he be willing to pay to get out of a 10 percent mortgage and into a 8 percent mortgage with 20 years remaining on the mortgage? Suggestion: Find the annual savings and then discount them back to the present at the current interest rate (8 percent).

Jim Thomas borrows $86,000 at 10 percent interest toward the purchase of a home. His mortgage is for 20 years. (Use a Financial calculator to arrive at the answers. Round the final answers to the nearest whole dollar.)

Explanation / Answer

a. Annual payments will be $9959.04

b. Amount of interest will be $113180 over the term of the loan at 10% interest rate

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Amount of interest will be $86641 over the term of the loan at 8% interest rate

Saving in interest over the term of the loan: $26539

c. Amount to be paid: $14643

Period 10% 8% Savings Discounted savings 1 8536 6814 1722 1594 2 8387 6663 1724 1478 3 8222 6500 1722 1367 4 8040 6323 1717 1262 5 7840 6131 1709 1163 6 7618 5924 1694 1068 7 7372 5699 1673 976 8 7102 5456 1646 889 9 6802 5192 1610 805 10 6472 4907 1565 725 11 6107 4597 1510 648 12 5703 4262 1441 572 13 5258 3900 1358 499 14 4765 3507 1258 428 15 4222 3082 1140 359 16 3621 2621 1000 292 17 2957 2122 835 226 18 2224 1582 642 161 19 1414 996 418 97 20 519 363 156 33 113181 86641 26540 14643

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