Question
In: Finance
Freddy and Frieda Finance are looking to buy a house. They find a house that they...
Freddy and Frieda Finance are looking to buy a house. They find a house that they like costing $400,000 and have a $100,000 as a down payment meaning they will need a mortgage loan of $300,000 if they pay their closing costs in cash. Help them evaluate some mortgage options.
1. Nautical Bank offers a 30-year fixed rate mortgage with a nominal annual rate of 3.125%. What would be the Finances’ monthly payment under this loan?
2. Construct an amortization schedule for the 30-year Nautical Bank loan in #1 (see section 5-18 of the textbook). What will be the Finance’s loan balance after 7 years of payments (after payment 84)?
3. Bank of United States offers a 15-year fixed rate mortgage with a nominal annual rate of 2.5%. What would be the Finance’s monthly payment under this loan?
4. Construct an amortization schedule for the 15-year Bank of United States loan in #3 (see section 5-18 of the textbook). What will be the Finance’s loan balance after 7 years of payments (after payment 84)?
Solutions
Expert Solution
1. To Calculate Monthly Payment
Down Payment 100,000
Loan Amount = $400,000 - $100,000= $300,000
r = 3.125/100=0.03
Monthly Payment =
=
= $1285.126
2. Amortization Schedule
| Year | Principal | Interest | Total Paid | Balance |
| 2020 | $1,515.58 | $2,339.81 | $3,855.39 | $298,484.42 |
| 2021 | $6,181.96 | $9,239.60 | $15,421.56 | $292,302.46 |
| 2022 | $6,377.94 | $9,043.62 | $15,421.56 | $285,924.52 |
| 2023 | $6,580.14 | $8,841.42 | $15,421.56 | $279,344.38 |
| 2024 | $6,788.74 | $8,632.82 | $15,421.56 | $272,555.64 |
| 2025 | $7,003.97 | $8,417.59 | $15,421.56 | $265,551.67 |
| 2026 | $7,225.98 | $8,195.58 | $15,421.56 | $258,325.69 |
| 2027 | $7,455.05 | $7,966.51 | $15,421.56 | $250,870.64 |
| 2028 | $7,691.40 | $7,730.16 | $15,421.56 | $243,179.24 |
| 2029 | $7,935.24 | $7,486.32 | $15,421.56 | $235,244.00 |
| 2030 | $8,186.78 | $7,234.78 | $15,421.56 | $227,057.22 |
| 2031 | $8,446.32 | $6,975.24 | $15,421.56 | $218,610.90 |
| 2032 | $8,714.07 | $6,707.49 | $15,421.56 | $209,896.83 |
| 2033 | $8,990.33 | $6,431.23 | $15,421.56 | $200,906.50 |
| 2034 | $9,275.33 | $6,146.23 | $15,421.56 | $191,631.17 |
| 2035 | $9,569.37 | $5,852.19 | $15,421.56 | $182,061.80 |
| 2036 | $9,872.74 | $5,548.82 | $15,421.56 | $172,189.06 |
| 2037 | $10,185.70 | $5,235.86 | $15,421.56 | $162,003.36 |
| 2038 | $10,508.63 | $4,912.93 | $15,421.56 | $151,494.73 |
| 2039 | $10,841.76 | $4,579.80 | $15,421.56 | $140,652.97 |
| 2040 | $11,185.46 | $4,236.10 | $15,421.56 | $129,467.51 |
| 2041 | $11,540.06 | $3,881.50 | $15,421.56 | $117,927.45 |
| 2042 | $11,905.90 | $3,515.66 | $15,421.56 | $106,021.55 |
| 2043 | $12,283.33 | $3,138.23 | $15,421.56 | $93,738.22 |
| 2044 | $12,672.73 | $2,748.83 | $15,421.56 | $81,065.49 |
| 2045 | $13,074.45 | $2,347.11 | $15,421.56 | $67,991.04 |
| 2046 | $13,488.97 | $1,932.59 | $15,421.56 | $54,502.07 |
| 2047 | $13,916.57 | $1,504.99 | $15,421.56 | $40,585.50 |
| 2048 | $14,357.77 | $1,063.79 | $15,421.56 | $26,227.73 |
| 2049 | $14,812.91 | $608.65 | $15,421.56 | $11,414.82 |
| 2050 | $11,414.82 | $149.12 | $11,563.94 | $0.00 |
| Totals | $300,000.00 | $162,644.57 | $462,644.57 |
Balance after 7 years $258,325.69
3. By applying same formulae
we will get monthly payment $2000
4. Amortization Schedule
| Year | Principal | Interest | Total Paid | Balance |
| 2020 | $4,134.72 | $1,866.39 | $6,001.11 | $295,865.28 |
| 2021 | $16,799.42 | $7,205.02 | $24,004.44 | $279,065.86 |
| 2022 | $17,224.26 | $6,780.18 | $24,004.44 | $261,841.60 |
| 2023 | $17,659.84 | $6,344.60 | $24,004.44 | $244,181.76 |
| 2024 | $18,106.44 | $5,898.00 | $24,004.44 | $226,075.32 |
| 2025 | $18,564.33 | $5,440.11 | $24,004.44 | $207,510.99 |
| 2026 | $19,033.79 | $4,970.65 | $24,004.44 | $188,477.20 |
| 2027 | $19,515.12 | $4,489.32 | $24,004.44 | $168,962.08 |
| 2028 | $20,008.64 | $3,995.80 | $24,004.44 | $148,953.44 |
| 2029 | $20,514.61 | $3,489.83 | $24,004.44 | $128,438.83 |
| 2030 | $21,033.39 | $2,971.05 | $24,004.44 | $107,405.44 |
| 2031 | $21,565.30 | $2,439.14 | $24,004.44 | $85,840.14 |
| 2032 | $22,110.64 | $1,893.80 | $24,004.44 | $63,729.50 |
| 2033 | $22,669.80 | $1,334.64 | $24,004.44 | $41,059.70 |
| 2034 | $23,243.09 | $761.35 | $24,004.44 | $17,816.61 |
| 2035 | $17,816.61 | $186.11 | $18,002.72 | $0.00 |
| Totals | $300,000.00 | $60,065.99 | $360,065.99 |
Balance after 7 years $188,477.20
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