Question 6 25 Points You found your dream vacation cottage i

Question 6 25 Points You found your dream vacation cottage in the mountains and your offer of $78,000 was accepted. You plan to put 20% down and will roll the closing costs of $3,500 into the mortgage. Congratulations, your 15 year mortgage has been approved at an interest rate of 4.125%. (You must use the attached Excel loan amortization schedule). How much are you financing? How much are your monthly mortgage payments? How much will you pay in total interest? If, before you began paying the loan: You decided to round your payment up to the nearest $100. How much additional would you pay? How much interest would paying the additional amount save you over the life of the loan? Does this change the total number of payments to satisfy the loan? If so, by how many? Instead of paying the additional, you decide to pay by-weekly. What are your payments? Rather than paying additional what if: You decided to pay bi-weekly payments. How much less will you pay over the life of the loan?

Solution

Price of cottage $78,000 Less: 20% down payment 15600 $62,400 Add: closing cost $3,500 Amount to be financed $65,900 PV $65,900 NPER 180 (15 x 12) rate 0.0034375 (4.125%/12) EMI $491.59 Monthly Mortgage Payment =PMT(4.125%/12,180,-65900) Total payment(491.59 x 180) $                                     88,486.20 Less: amount financed $65,900.00 Total interest $22,586.20 How much additional would you pay? (500-491.59) $8.41 Since EMI amount is changed from $491.59 to $500, New term of mortgage will be NPER                                               175.84 Change in no of payments 4.16 =NPER(4.125%/12,500,-65900) (180-175.84) Total Payment $                                     87,920.00 Less: amount financed $65,900.00 Total interest $22,020.00 Savings in interest $                                           566.20 (22586.20-22020) If changed to weekly payments New EMI will be $113.34 =PMT(4.125%/52,15*52,-65900) If changed to bi-weekly payments New EMI will be $226.74 =PMT(4.125%/26,15*26,-65900) Total payment(226.74 x 390) $                                     88,428.60 Less: amount financed $65,900.00 Total interest $22,528.60 Total interest if monthly $                                     22,586.20 amount paid lower $57.60