Suppose you can find a house that you want to buy. You have negotiated with the
ID: 3198236 • Letter: S
Question
Suppose you can find a house that you want to buy. You have negotiated with the sellers and have agreed upon a price of $230,000. We are going to explore various options and how these options will impact the overall cost of the loan.
Payment Frequency
Monthly
If you make monthly payments with an interest rate of 3.2% for 30 years, how much will your payments be? $
How much do you pay over the life of the loan? $
How much of that is interest? $
Bi-Weekly
If you make payments every two weeks (26 payments in a year) with an interest rate of 3.2% for 30 years, how much will your payments be? $
How much do you pay over the life of the loan? $
How much of that is interest? $
Rate
r = 3.2%
If you make monthly payments with an interest rate of 3.2% for 30 years, how much will your payments be? $
How much interest did you pay over the life of the loan? $
r = 4.2%
If you make monthly payments with an interest rate of 4.2% for 30 years, how much will your payments be? $
How much interest did you pay over the life of the loan? $
r = 5.2%
If you make monthly payments with an interest rate of 5.2% for 30 years, how much will your payments be? $
How much interest did you pay over the life of the loan? $
Time
15 years
If you make monthly payments with an interest rate of 3.2% for 15 years, how much will your payments be? $
How much interest did you pay over the life of the loan? $
20 years
If you make monthly payments with an interest rate of 3.2% for 20 years, how much will your payments be? $
How much interest did you pay over the life of the loan? $
30 years
If you make monthly payments with an interest rate of 3.2% for 30 years, how much will your payments be?$
How much interest did you pay over the life of the loan? $
40 years
If you make monthly payments with an interest rate of 3.2% for 40 years, how much will your payments be?$
How much interest did you pay over the life of the loan? $
Extra Payment
Now suppose you make an extra payment at the beginning of the loan. Suppose you pay an extra $1000. Treat this a down payment coming off of the original price. If you make monthly payments with an interest rate of 3.2% for 30 years, how much will your payments be? $
How much interest did you pay over the life of the loan? $
(Don't forget to include the $1000 in the amount of money you pay over the life of the loan.)
Conclusion
Let's now organize our information we found in a table. For each entry, record the interest you paid.
Base
30 year, r = 3.2%, Monthly
$
Frequency
30 year, r = 3.2%, Bi-weekly
$
Rate
30 year, r = 4.2%, Monthly
$
Rate
30 year, r= 5.2%, Monthly
$
Time
15 year, r = 3.2%, Monthly
$
Time
20 year, r = 3.2%, Monthly
$
Time
40 year, r = 3.2%, Monthly
$
Extra Payment
30 year, r = 3.2%, Monthly, Extra $1000
$
What have you learned about mortgages? A quality answer should be written in complete sentences and indicate what mortgage options have the biggest impact on the money that comes out of your pocket.
Explanation / Answer
The mathematical formula for calculating EMIs is: EMI = [P x R x (1+R)^N]/[(1+R)^N-1],
where P stands for the loan amount or principal,
R is the interest rate per period
[ex. if the interest rate per annum is 11%, then the rate of interest will be 11/(12 x 100)],
and N is the number of periods
total amount paid = EMI x no. of payments
Sno. Loan amount frequency no. of payments in 1 year interest rate annual interest rate period periods (in yrs) periods EMI total amount 1 230000 monthly 12 3.20% 0.002666667 30 360 ($994.67) ($358,082.56) 2 230000 Biweekly 26 3.20% 0.001230769 30 780 ($458.88) ($357,929.63) 3 230000 monthly 12 4.20% 0.0035 30 360 ($1,124.74) ($404,906.22) 4 230000 monthly 12 5.20% 0.004333333 30 360 ($1,262.96) ($454,663.81) 5 230000 monthly 12 3.20% 0.002666667 15 180 ($1,610.55) ($289,899.86) 6 230000 monthly 12 3.20% 0.002666667 20 240 ($1,298.72) ($311,693.88) 7 230000 monthly 12 3.20% 0.002666667 30 360 ($994.67) ($358,082.56) 8 230000 monthly 12 3.20% 0.002666667 40 480 ($850.09) ($408,045.24)Related Questions
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