Question

would like both problems done or at most #3 !

2. Suppose you take a $300,000 thirty year fixed-rate mortgage at 5.75% two discount points, monthly payments. At the end of the second year you inherit $20,000 from your now-favorite aunt. You decide to apply this $20,000 to the principal balance of your loan A. (1 pt) How many monthly payments are remaining after the extra lump sum payment is made? B. (1 pt) What is your net interest savings over the life of the loan, assuming the loan is held to its maturity? 3. You just took a fixed-rate mortgage for $150,000 at 4.75% for 30 years, monthly payments, two discount points. Before you make any payments you receive a nice raise so you plan to pay an extra $160 per month on top of your normal payment. A. (1 pt) What is your net interest savings over the life of the loan, assuming the loan is held to its maturity? B. (1 pt) If you make this higher payment and hold the loan for its full life, what is the effective cost of the loan?

Answer 1

	3
		Amount of Loan	$150,000
		Discount Points(2%)	$3,000	(2%*150000)
	Pv	Total amount borrowed	$150,000
	Rate	Monthly interest (4.75/12)%	0.3958%
	Nper	Number of months of payment	360	(30*12)
	PMT	Amount of monthly payment	$782.47	(Using PMT function of excel with Rate=0.3958%,Nper=360.Pv=-150000)
		Total Payments to be made=782.47*360=	$281,690
		Principal Payment	$150,000
	a	Total Interest Payment=281690-150000	$131,690
		Extra Payment per month	$160
		Total Monthly Payment	$942.47	(782.47+160)
		Number of months of payment required	251.67	(Using NPER function of excel with Rate=0.3958%,Pmt=958.12Pv=-150000)
		Total Payments to be made =$942.47*251.67	$237,193
		Principal Payment	$150,000
	b	Total Interest Payment=237193-150000	$87,193
	a-b	Net Interest savings=131690-87193	$44,497
	B	Effective Cost of Loan
	Pv	Net amount borrowed 150000-3000	$147,000
	Nper	Number of months of payment	251.67
	Pmt	Total Monthly Payment	$942.47
	RATE	Effective Monthly Cost	0.4151%	(Using RATE function of excel with Nper=251.67,Pmt=942.47Pv=-147000)
		Annualized Interest APR (Compounded Monthly)	4.98%	(0.4151*12)
										F12 =PMT(F10,F11,-F9) G H I J K L M 4 6 A 7 8 9 PV 10 Rate 11 Nper 12 PMT 13 Amount of Loan Discount Points(2%) Total amount borrowed Monthly interest (4.75/12)% Number of months of payment Amount of monthly payment $150,000 $3,000 (2%*150000) $153,000 0.3958% 360 (30*12) $798.12 (Using PMT function of excel with Rate=0.3958%,Nper=360.Pv=-153000) F16 | x fx =NPER(F10, F15,-F9) G H I J K L M 6 7 Amount of Loan 8 Discount Points(2%) 9 Total amount borrowed 10 Monthly interest (4.75/12)% 11 Number of months of payment 12 Amount of monthly payment 13 14 Extra Payment per month 15 Total Monthly Payment 16 Number of months of payment required 17 $150,000 $3,000 (2%*150000) $153,000 0.3958% 360 (30*12) $798.12 (Using PMT function of excel with Rate=0.3958%,Nper=360.PV=-153000) $160 $958.12 (798.12+160) 253.11501! (Using NPER function of excel with Rate=0.3958%,Pmt=958.12Pv=-153000) : foc =RATE(F26,F27,-F25) PV Rate Nper PMT Amount of Loan Discount Points(2%) Total amount borrowed Monthly interest (4.75/12)% Number of months of payment Amount of monthly payment Total Payments to be made=782.47*360= Principal Payment Total Interest Payment=281690-150000 Extra Payment per month Total Monthly Payment Number of months of payment required Total Payments to be made =$942.47*251.67 Principal Payment Total Interest Payment=237193-150000 Net Interest savings=131690-87193 F G H I I J K L M $150,000 $3,000 (2%*150000) $150,000 0.3958% 360 (30*12) $782.47 (Using PMT function of excel with Rate=0.3958%, Nper=360.Pv=-150000) $281,690 $150,000 $131,690 $160 $942.47 (782.47+160) 251.67 (Using NPER function of excel with Rate=0.3958%,Pmt=958.12Pv=-150000) $237,193 $150,000 $87,193 $44,497 а b a-b B Pv Nper Pmt RATE Effective Cost of Loan Net amount borrowed 150000-3000 Number of months of payment Total Monthly Payment Effective Monthly Interest $147,000 251.67 $942.47 0.4151%! (Using RATE function of excel with Nper=251.67, Pmt=942.47Pv=-147000) |