Question

Compare the monthly payments and total loan costs for the following pairs of loan options. Assume that both loans are fixed rate and have the same closing costs.

You need a ​$ 60,000 loan.

Option​ 1: a​ 30-year loan at an APR of 6.15%

Option​ 2: a​ 15-year loan at an APR of 5.75​%.

1-The monthly payment for option 1 is:

2- the monthly payment for option 2 is:

3- loan cost for option 1 is:

4- loan coast for option 2 is:

5- which loan option is the best:

Answer 1

Formula to Calculate EMI = (P x (r/12) x(1+(r/12))^n*12)/)((1+(r/12))^n*12)-1)

Ans 1) The monthly payment for option 1 is 365.54

=(60000*(0.0615/12)*(1+(0.0615/12))^360)/(((1+(0.0615/12))^360)-1) = 365.54

Ans 2) The monthly payment for option 2 is 498.24

=(60000*(0.0575/12)*(1+(0.0575/12))^180)/(((1+(0.0575/12))^180)-1) - 498.24

Ans 3) Loan cost for option 1 is 131593.3

=(P*(r/12)*n*12)/(1-(1+(r/12))^-n*12)

=(60000*(0.0615/12)*360)/(1-(1+(0.0615/12))^-360) = 131593.3

Ans 4) Loan cost for option 2 is 89684.29

=(60000*(0.0575/12)*180)/(1-(1+(0.0575/12))^-180) = 89684.29

Ans 5) Which loan option is the best:- Option 2

In option 2 loan cost is less in comparison to option 1 so option 2 is better though EMI outflow is little higher there but cost wise it's very effective.

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