Lenders primarily use the Fair Isaac Corporation (FICO) model to determine credit scores. FICO grades consumers...

Lenders primarily use the Fair Isaac Corporation (FICO) model to determine credit scores. FICO grades consumers on a 300- to 850-point range; a higher score indicates less risk to the

lender. A score of 800 or higher is considered exceptional; 740 to 799 is very good; 670 to 739 is good; 580 to 669 is fair; and 579 or lower is poor.

According to MyFICO.com your credit score can impact interest rates available to you as follows:
FICO score	APR
760–850	4.17%
700–759	4.392%
680–699	4.569%
660–679	4.783%
640–659	5.213%
620–639	5.759%

Using the loan rate available to someone with a FICO credit score of 780, calculate the monthly payment and total paid over the life of a $250,000 30-year fixed-rate mortgage for someone with this credit score.

Now, calculate the monthly payment and total paid using the loan rate available to someone with a FICO credit score of 630.

Calculate the difference in monthly payment and the total interest paid for someone with a very good credit rating (780) with someone who has a low credit rating (630).

Solutions

Expert Solution

Hello

To determine the monthly payment, I have used the PMT function of Excel. The inputs for PMT function are - PV, Periods, Rate.

All the three sub-questions are solved in the snapshot below. To avoid repetition, some rows have been hidden.

With formulae -

Hope this helps.

Please provide your feedback!

Thank you!

jeff jeffy answered 8 months ago

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