Question

3. Bobby and Sylvia are buying a house. They have applied for a $215,000 mortgage at two companies:

a. Company 1: (Canwee, Cheatum and Howe) lasting 30 years at 3.99% interest.

b. Company 2: (How, Wei, Ripum and Off) lasting 25 years at 3.67% interest.

c. Determine their monthly payment from each company

d. How much principal and interest will be paid for the first payment from each company?

e. Which is the better deal?

Answer 1

c))Monthly paymeny calculator for Mortgage loan=PXRX(1+R)^N/(1+R)^N-1,

Where P=Loan Amount

R=Interest Rate

N=No of installments

Therefore monthly payment of Company1 will be=$215000X(.0399/12)*(1+.0399/12)^360/[(1+.0399/13)^360]-1

Monthly Installments comes out to be after solving=$1025.204

Monthly payment of Company2 will be=$215000X(.0367/12)*(1+.0367/12)^300/[(1+.0367/12)^300]-1

Monthly installments comes out to be after solving:$1096.042

d) Company1:

Interest on first installment will be on whole amount on reducing balance basis:

Interest on first Installment:3.99%*215000=$714.875

Principal amount on first installment=$1025.204-$714.875=$310.329

Company 2

Interest on first installment will be on whole amount on reducing balance basis:

Interest on first Installment:3.67%*215000=$657.5417

Principal amount on first installment=$1096.042-$657.5417=$438.5003

E) Which i s better deal

Company 1 Total payment done at the end of 30 Years= 360*1025.204=$369073.4

Interest paid =$369073.4-215000=$154073.40

Company 2 Total payment done at the end of 30 Years= 300*1096.042=$328812.6

Interest paid =$328812.6-215000=$113812

AS tenure is less you have to pay higher installments but at the end you end up paying less interest in company 2, therefore compant 2 is better