In: Finance
A borrower is interested in comparing the monthly payments on two otherwise equivalent 30 year FRMs. Both loans are for $100,000 and have a 7% interest rate. Loan 1 is fully amortizing, where as Loan 2 has negative amortization with a $120,000 balloon payment due at the end of the life of the loan. How much higher is the monthly payment on loan 1 versus loan 2? (Hint: calculate both payments and take the difference. Only the future values of the loans are different. Round your answer to two decimal places.)
As per the given information:
Loan 1:
Rate = 7%
Nper = 30
PV = $100000
Using excel calculator :
Monthly payment for Loan 1 = pmt(rate, nper, pv,fv)
= pmt(7%/12,30*12,-100000,0)
= $665.30
Loan 2:
Rate = 7%
Nper = 30
PV = $100000
FV=$120000
Using excel calculator :
Monthly payment for Loan 2 = pmt(rate, nper, pv,fv)
= pmt(7%/12,30*12,-100000,120000)
= $566.94
Monthly payment on loan 1 versus loan 2 = 665.3-566.94
= $98.36