PROBLEMS :
13. For the following loan, make a table showing the amount of each monthly payment that goes toward principal and interest for the first three months of the loan.
A home mortgage of $164,000 with a fixed APR of 3% for 30 years. (Round the final answers to the nearest cent as needed. Round all intermediate values to six decimal places as needed.)
Month 1:
Interest: ____
Payment towards principal: ____
New Principal: ____
Month 2:
Interest: ____
Payment towards principal: ____
New Principal: ____
Month 3:
Interest: ____
Payment towards principal: ____
New Principal: ____
25. You can afford monthly payments of $800. If current mortgage rates are 3.93% for a 30-year fixed rate loan, how much can you afford to borrow?
How much can you afford to borrow? $______ (round to nearest dollar)
If you are required to make a 10% down payment and you have the cash on hand to do it, how expensive a home can you afford? (Hint: You will need to solve the loan payment formula for P.)
How expensive a home can you afford? $______ (round to nearest dollar)
24. You have a choice between a 30-year fixed rate loan at 6.5% and an adjustable rate mortgage (ARM) with a first year rate of 2%. Neglecting compounding and changes in principal, estimate your monthly savings with the ARM during the first year on a $225,000 loan.
What is the approximate monthly savings with the ARM during the first year? $____ (round to nearest dollar)
Suppose that the ARM rate rises to 11.5% at the start of the third year. Approximately how much extra will you then be paying over what you would have paid if you had taken the fixed rate loan?
How much extra $_____ (round to nearest dollar)
20. 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 $30,000 loan.
Option 1: a 30-year loan at an APR of 7.65%.
Option 2: a 15-year loan at an APR of 7.25%.
Find the monthly payment for each option.
The monthly payment for option 1 is $ _______
The monthly payment for option 2 is $ _______
Total loan costs for option 1 $ ______
Total loan costs for option 2 $ ______
(Do not round until the final answer. Then round to the nearest cent as needed.)
