Question
In: Finance
A borrower is interested in comparing the monthly payments on two otherwise equivalent 30 year FRMs....
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.)
Solutions
Expert Solution
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
jeff jeffy answered 1 year agoRelated Solutions
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