Question

Chandler and Monica Bing wish to buy a new home. The listing price is $387,500 and they plan to put 20% down. New Rochelle Savings and Loan will lend them the remainder at a 9% fixed APR for 30 years, with monthly payments to begin in one month. For simplicity, let’s ignore closing costs and taxes when solving this question. a).    How much will their monthly payments be? b). Suppose Chandler and Monica want to pay off the loan in 15 years. How much extra must they pay each month to do so, if the APR remains at 9% and there is no early payment penalty?

Answer 1

- Loan Amount = Listing Price*(1- % of Down payment)

Loan Amount = $387,500*(1-0.20) = $310,000

Monthly Interest rate = Fixed APR/12 = 9%/12 = 0.75%

No of monthly Payment = 30 years*12 = 360

a). Calculating the Monthly payment using the Excel "PMT" function:-

SO, Monthly Payment is $2494.33

b). Chandler and Monica want to pay off the loan in 15 years.

No of monthly Payment = 15 years*12 = 180

Calculating the Monthly payment if 15-year is mortgage period using the Excel "PMT" function:-

Monthly payment of 15-year loan period is $3144.23

- Extra each month they would pay if they choose 15-month loan period = $3144.23 - $2494.33

= $649.90