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Contemporary Mathematics for Busin...

8th Edition
Robert Brechner + 1 other
ISBN: 9781305585447

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BuyFindarrow_forward

Contemporary Mathematics for Busin...

8th Edition
Robert Brechner + 1 other
ISBN: 9781305585447
Textbook Problem

Phil Pittman is interested in a fixed-rate mortgage for $100,000. He is undecided whether to choose a 15- or 30-year mortgage. The current mortgage rate is 5.5 % for the 15-year mortgage and 6.5 % for the 30-year mortgage.

a. What are the monthly principal and interest payments for each loan?

b. What is the total amount of interest paid on each loan?

c. Overall, how much more interest is paid by choosing the 30-year mortgage

(a)

To determine

To calculate: The monthly principal interest payment for each loan if Phil Pittman is interest in a fixed rate mortgage for $100000 at current, rate is 5.5% for the 15 year mortgage and current rate is 6.5% for the 30 year mortgage.

Explanation

Given Information:

Phil Pittman is interest in a fixed rate mortgage for $100000.

The current mortgage rate is 5.5% for the 15 year mortgage and 6.5% for the 30 year mortgage.

Formula used:

The following steps are used to find the monthly mortgage payment by using an amortization table:

Step-1 Find the number of $1,000s financed.

Number of $1,000s financed=Amount finanaced1,000

Step-2 Using Table 14-1, locate the table factor, monthly payment per $1,000s financed, at the intersection of the number-of –year column and thee interest rate row.

Step-3 Calculate the monthly payment.

Monthlypayment=TableFactor×No Of 1000's inthePrinciple

Calculation:

The amount of monthly payment is $100000

Now calculate the number of $1,000s amount of financed $100000

Substitute, $100000 for Amount finanaced in above relation,

Number of $1,000s financed=$1000001,000=100

The number of $1,000s is 100

(b)

To determine

To calculate: The total amount of interest paid on each loan if Phil Pittman is interest in a fixed rate mortgage for $100000 at current, rate is 5.5% for the 15 year mortgage and current rate is 6.5% for the 30 year mortgage.

(c)

To determine

To calculate: The more amount of interest paid by choosing the 30 year mortgage than the 15 year mortgage

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