Question

1.         You have purchased a home for $150,000. Fortunately, you were able to make a down payment of $15,000, but took out a 30-year mortgage for the $135,000 balance. The note payments are $1,388.63 per month at 12% annual interest.

                        A.        Prepare the amortization schedule for the first 12 months of payments.

B.       Calculate the subtotal for the amounts of cash payments, interest payments, and principal payments for the first12 months of payments.

                        C.        Calculate the total amount of interest that will be paid over the life of this loan.

                        D.        Calculate the total dollar cost of this home over the 30 years.

2.         Assume the same facts and requirements as in #1 above, except that the mortgage is a 15-year mortgage and the amount of monthly loan payments is $1,620.23.

3.         How much more would you pay for your home if you take a 30-year mortgage as opposed to taking 15-year mortgage?

Answer 1

Answer A:

Amortization schedule for the first 12 months:

Answer B:

Subtotal for the amounts of cash payments, interest payments, and principal payments for the first12 months of payments are as follows:

Workings:

Answer C:

Monthly Payments = $1,388.63

Total monthly payments over 30 years (360 months) = $1,388.63 *360 = $499,906.80

Principal amount = $135,000

Hence:

Interest that will be paid over the life of this loan = $499,906.80 - $135,000 = $364,906.80

Interest that will be paid over the life of this loan = $364,906.80

Answer D:

Monthly Payments = $1,388.63

Total monthly payments over 30 years (360 months) = $1,388.63 *360 = $499,906.80

Total dollar cost of this home over the 30 years = $499,906.80

Answer 2 and 3:

Assume the same facts and requirements as in #1 above, except that the mortgage is a 15-year mortgage and the amount of monthly loan payments is $1,620.23

Total monthly payments over 15 years (180 months) = $1,620.23 *180 = $291,641.40

Amount that you pay more if you take a 30-year mortgage as opposed to taking 15-year mortgage = $499,906.80 - $291,641.40 = $208,265.40

Amount that you pay more if you take a 30-year mortgage as opposed to taking 15-year mortgage = $208,265.40