Question

Create AS for a $250,000 M to be repaid in equal monthly payments at the end of each month for the next 15 years. AIR=5% compounded monthly.

AS= amortization schedule, M=mortgage, AIR = annual interest rate

b. How large must each MP be if the loan is for $350,000? IR stays at 5% and that the loan is paid off over 15 years.

MP=monthly payment, IR = interest rate

c. How large must each payment be if the loan is for $350,000, the interest rate is 5%, and the loan is paid off in equal monthly payments at the end of each month for the next 30 years? This loan is for the same amount as the loan in part b, but the payments are spread out over twice as many periods. Why are these payments not half of the payments on the loan in part (b)?

Answer 1

1)	Mortgage Loan	$250,000
	No of payments(15*12)	180
	Monthly Interest Rate	0.416666667
	We can use the PMT function in excel to find out the monthly payment for the mortgage loan
	PMT(0.416%,180,250000)
	($1,975.94)
	The Monthly payment would be $ 1975.94 for 180 months 2) Mortgage Loan $350,000 No of payments(15*12) 180 Monthly Interest Rate 0.416666667 We can use the PMT function in excel to find out the monthly payment for the mortgage loan PMT(0.416%,180,350000) ($2,766.32) The Monthly payment would be $ 2766.32 for 180 months 3) Mortgage Loan $350,000 No of payments(30*12) 360 Monthly Interest Rate 0.416666667 We can use the PMT function in excel to find out the monthly payment for the mortgage loan PMT(0.416%,360,350000) ($1,877.16) The Monthly payment would be $ 1877.16 for 180 months Since there are multiple variables used in the calculation and just by increasing the payment period by 100% would lead to reduction in monthly payments by half