14 Seth is buying a house that sells for 354000 The bank is

14) Seth is buying a house that sells for $354,000. The bank is requiring a minimum down payment of 20%. The bank has offered Seth 2 choices for the mortgage, a 15 year loan at 4.25% or a 30 year loan at 4.5% a. Find the monthly payment for the 15 year loan (4 points) b. Find the monthly payment for the 30 year loan (4 points) 10

Solution

loan amount = $354,000(1 - 0.20)

= $283,200

a). Monthly Payment = (PV x r)/[1 - (1 + r)^-n]

= ($283,200 x 0.0425/12) / [1 - (1 + 0.0425/12)^-15x12]

= ($283,200 x 0.0035) / [1 - 1.0035^-180]

= $1,003/0.4708 = $2,130.45

b). Monthly Payment = (PV x r)/[1 - (1 + r)^-n]

= ($283,200 x 0.045/12) / [1 - (1 + 0.045/12)^-30x12]

= ($283,200 x 0.00375) / [1 - 1.00375^-360]

= $1,062/0.7401 = $1,434.93