Question

​Madeoff's Mortgage. Bernie Madeoff pays ​$220 comma 000 for a new​ four-bedroom 2,400-square-foot home outside​ Tonopah, Nevada. He plans to make a 20​% down​ payment, but is having trouble deciding whether he wants a 15​-year fixed rate ​(6.398​%) or a 30​-year fixed rate ​(6.873​%) mortgage. a. What is the monthly payment for both the 15​- and 30​-year ​mortgages, assuming a fully amortizing loan of equal payments for the life of the​ mortgage? b. Assume that instead of making a 20​% down​ payment, he makes a 10​% down​ payment, and finances the remainder at 7.124​% fixed interest for 15 years. What is his monthly​ payment? c. Assume that the​ home's total value falls by​ 25%. If Bernie sells the house at the new market​ value, what would be his gain or loss on the home and​ mortgage, assuming all of the mortgage principal​ remains? Use the same assumptions as in part a. a. What is the monthly payment for both the 15​- and 30​-year ​mortgages, assuming a fully amortizing loan of equal payments for the life of the​ mortgage? The monthly payment for the​ 15-year mortgage is ​$ nothing.

Answer 1

A)	Home Value	Down Payment (20%)	Total Loan (80%)
	$220,000.00	$44,000.00	$176,000.00
	For a 15 Year Loan, total instalments would be = 15 x 12 = 180
	For a 30 Year Loan, total instalments would be = 30 x 12 = 360
	Rate for 15 Year loan is 6.398% per annum. Converting it to monthly rate = 6.398/12 = 0.53%
	Rate for 30 Year loan is 6.873% per annum. Converting it to monthly rate = 6.873/12 = 0.57%
	The Formula Used is: 12 A = Pez ( 1. A - Amortization P - Principal 1 - Interest Rate n - Term (expressed in months)
	Where P = $176000
	i=0.0053, n=180 (for 15 year loan)
	i=0.0057, n=360 (for 30 year loan)
	Plugging in these values we will get
	Total Monthly Payment for a 15 Year Fully Amortizing Mortgage loan is $1,523.22
	Total Monthly Payment for a 30 Year Fully Amortizing Mortgage loan is $1,155.95
B)	Home Value	Down Payment (10%)	Total Loan (90%)
	$220,000.00	$22,000.00	$198,000.00
	For a 15 Year Loan, total instalments would be = 15 x 12 = 180
	Rate for 15 Year loan is 7.124% per annum. Converting it to monthly rate = 7.124/12 = 0.59.%
	The Formula Used is:
	Where P = $198000
	i=0.0059, n=180
	Plugging in these values we will get
	Total Monthly Payment for a 15 Year Fully Amortizing Mortgage loan is $1,793.47