Question

Sarah considers whether to make an additional down payment on her home. She obtained a $100,000 loan with a 30-year term at 3.5% interest. Using the loan amortization formula, how much does she save on her monthly loan payments if she decreases her loan amount by $20,000? $94.10 $89.80 $121.30 $114.60

Answer 1

Ans $ 89.80

	P =	Regular Payments
	PV =	Loan Amount
	r =	rate of interest
	n =	no of periods
a)	P =	r (PV)
		1 - (1 + r )-n
	P =	(3.5%/12)*100000
		1 - (1 / (1 + 3.5%/12)^360))
	P =	291.6666667
		0.649527039
	P =	449.04
b)	P =	r (PV)
		1 - (1 + r )-n
	P =	(3.5%/12)*80000
		1 - (1 / (1 + 3.5%/12)^360))
	P =	233.3333333
		0.649527039
	P =	359.24
	Difference =	449.04 - 359.24
		89.80