Discover® offers a home equity line of credit that lowers the total of the month

Question

Discover® offers a home equity line of credit that lowers the total of the monthly payments on several hypothetical loans by S366.12. (See the following table.) The home equity loan payment is based on " 10.49% APR annualized over a 10-year term." This means the loan is amortized at 10.49% with monthly payments. 1. Using this interest rate and monthly payments for the 10 years, how much money will still 2. 3. 4. be owed at the end of the 10 years? How much is paid during the 10 years? How much would the payment have to be to have the debt paid in the 10 years? How long would it take to pay off the debts under the original plan if interest were 15% on each loan? Current Monthly Payment Example Loan Discover Home Equity Monthly Payment Loan Type Monthly Payment Loan Amount Amount Bank cards Auto loan Department store cards Discover home equity line of credit Total S10,000 S12,500 S2,500 $186.00 PAID OFF $320.03 PAID OFF $78.63 PAID OFF $25,000 S25,000 NONE NONE NONE S218.54 S218.54 S25,000 $584.66

Explanation / Answer

Working notes as per sample tables below computed for 12 months -

Ans 1.                        25,000 $25000+interest for 10 years - amount paid till now Ans 2. Amount Paid During 10 year                   26,225 Ans 3. Monthly Payment to clear of loan and interest 337.201 Ans 4. Time to Clear original loan if interest is 15% payable monthly 62 months

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