You\'ve decided to buy a house that is valued at $1 million. You have $200,000 t

Question

You've decided to buy a house that is valued at $1 million. You have $200,000 to use as a down payment on the house, and want to take out a mortgage for the remainder of the purchase price. Your bank has approved your $800,000 mortgage, and is offering a standard 30-year mortgage at a 9% fixed nominal interest rate (called the loan's annual percentage rate or APR). Under this loan proposal, your mortgage payment will be month. (Note: Round the final value of any interest rate used to four decimal places.) per Your friends suggest that you take a 15-year mortgage, because a 30-year mortgage is too long and you will pay a lot of money on interest. If your bank approves a 15-year, $800,000 loan at a fixed nominal interest rate of 9% (APR), then the difference in the monthly payment of the 15-year mortgage and 30-year mortgage will be ? (Note: Round the final value of any interest rate used to four decimal places.) 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? O $1,010,987.89 O $856,769.40 O $1,096,664.83 O $1,182,341.77 Which of the following statements is not true about mortgages? O If the payment is less than the interest due, the ending balance of the loan will decrease. O Every payment made toward an amortized loan consists of two parts-interest and repayment of principal O The ending balance of an amortized loan contract will be zero. O Mortgages are examples of amortized loans.

Explanation / Answer

1) 800,000 = x/(1+0.09/12) + x/{(1+0.09/12)^2} + ............ + x/{1+0.09/12)^360})

On solving for x, we get: x = 6,436.98 per month

2) 800,000 = x/(1+0.09/12) + x/{(1+0.09/12)^2} + ............ + x/{1+0.09/12)^180})

On solving for x, we get: x = 8,114.13 per month

Difference = 1,677.15

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