Problem: Justin and Hayley are interested in afixed-rate mortgage for $450,000. They areundecided whether to choose a 15- or 30-yearmortgage. The current mortgage rate is 3.5% forthe 15-year mortgage, and 3.85% for the 30-yearmortgage.(a) What are the monthly principal and interestpayments for EACH loan? Show your work.(b) What is the total amount of interest paid onEACH loan? Show your work.(c) Overall, how much more interest is paid bychoosing the 30-year mortgage? Show yourwork.

we have to find out monthly payment under each option and calculate interest under each option.

Answered: (b) What is the total amount of…

(b) What is the total amount of interest EACH loan? Show your work. (c) Overall, how much more interest is choosing the 30-year mortgage? Show

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter4: Time Value Of Money

Section: Chapter Questions

Problem 24PROB

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Concept explainers

Mortgages

A mortgage is a formal agreement in which a bank or other financial institution lends cash at interest in return for assuming the title to the debtor's property, on the condition that the obligation is paid in full.

Mortgage

The term "mortgage" is a type of loan that a borrower takes to maintain his house or any form of assets and he agrees to return the amount in a particular period of time to the lender usually in a series of regular equally monthly, quarterly, or half-yearly payments.

Question

Problem: Justin and Hayley are interested in a
fixed-rate mortgage for $450,000. They are
undecided whether to choose a 15- or 30-year
mortgage. The current mortgage rate is 3.5% for
the 15-year mortgage, and 3.85% for the 30-year
mortgage.
(a) What are the monthly principal and interest
payments for EACH loan? Show your work.
(b) What is the total amount of interest paid on
EACH loan? Show your work.
(c) Overall, how much more interest is paid by
choosing the 30-year mortgage? Show your
work.

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