Question

 Olivia plans to secure a 5-year balloon mortgage of $260,000 toward the purchase of a condominium. Her monthly payment for the 5 years is calculated on the basis of a 30-year conventional mortgage at the rate of 5%/year compounded monthly. At the end of the 5 years, Olivia is required to pay the balance owed (the "balloon" payment). What will be her monthly payment for the first 5 years, and what will be her balloon payment? (Round your answers to the nearest cent.)

 The Martinezes are planning to refinance their home. The outstanding balance on their original loan is $200,000. Their finance company has offered them two options. (Assume there are no additional finance charges. Round your answers to the nearest cent.)

 Option A: A fixed-rate mortgage at an interest rate of 2.5%/year compounded monthly, payable over a 25-year period in 300 equal monthly installments.

 Option B: A fixed-rate mortgage at an interest rate of 2.25%/year compounded monthly, payable over a 15-year period in 180 equal monthly installments.

 (a) Find the monthly payment required to amortize each of these loans over the life of the loan.

 option A

 option B

 (b) How much interest would the Martinezes save if they chose the 15-year mortgage instead of the 25-year mortgage?

Answer 1

1.

=PMT(5%/12,12*30,-260000)

=$1,395.74

2.

=FV(5%/12,12*5,1395.74,-260000)
=$238,754.70

3.

=PMT(2.5%/12,12*25,-200000)
=$897.23

4.

=PMT(2.25%/12,12*15,-200000)
=$1,310.17

5.

=897.23*12*25-1310.17*12*15
=$33,339.52