Question

Several years after graduation you decided to buy a condo for $235,000.

a. Assuming you need a 15% down-payment which you have saved, what is the amount of the loan you need to borrow?

b. Given your calculation in part a, what will your monthly mortgage payment be assuming a 30 years mortgage at 4.75%?

c. What is the total amount you end up paying including principal and interest?

d. For comparison purposes, you also look at a 15 year mortgage at 4.5% for 15 years. What is your monthly payment?

e. What is the total amount you end up paying including principal and interest if you decide on the 15 year mortgage?

f. Which loan is better, 30 years at 4.75% or 15 years at 4.5%? Explain.

Answer 1

Based on the given data, pls find below workings:

Cost of Condo		2,35,000
Down Payment	15%	35,250
Amount Need to Borrow	85%	1,99,750
Loan	Rate (I/Y)	Period (N)	Amount (PV)	Nature	PMT / Annual	Total Paid (FV)
Loan A	4.75%	30	1,99,750	Fixed	12,626	3,78,783
Loan B	4.50%	15	1,99,750	Fixed	18,599	2,78,992
				Loan	PMT / Monthly
				Loan A	1,052
				Loan B	1,550

a. Assuming you need a 15% down-payment which you have saved, what is the amount of the loan you need to borrow? Amount required to be borrowed = $199750

b. Given your calculation in part a, what will your monthly mortgage payment be assuming a 30 years mortgage at 4.75%? Monthly Mortgage payment shall be $1052

c. What is the total amount you end up paying including principal and interest? Total Payback amout (Principal + Interest) shall be $378783

d. For comparison purposes, you also look at a 15 year mortgage at 4.5% for 15 years. What is your monthly payment?  Monthly Mortgage payment shall be $1550

e. What is the total amount you end up paying including principal and interest if you decide on the 15 year mortgage? otal Payback amout (Principal + Interest) shall be $278992

f. Which loan is better, 30 years at 4.75% or 15 years at 4.5%? Explain.

This is a two way approach; If one expects lower monthly mortgage payments, then Loan A with 30 years at 4.75% should be opted; However, overall, this shall have higher payback amount (Principal + Interest)

Otherwise, ideal way of choosing is to see how best we can retire the debt in shorter span of time as well as with lower payback amount in total; In this aspect, it is recommended to choose Loan B (with 15 years @ 4.5%).