Suppose you obtain a $250,00 conventional mortgage at an annual interest rate of
ID: 2328693 • Letter: S
Question
Suppose you obtain a $250,00 conventional mortgage at an annual interest rate of 4%.
(a) If it’s a 30 year mortgage, what is your monthly payment?
(b) If it’s a 15 year mortgage, what is your monthly payment? (Usually, a shorter term mortgage would have a better rate, but let’s ignore that.)
(c) Some would think that the payments for the 15 year mortgage would be roughly double the payments for the 30 year mortgage. Does that seem to be the case?
2
(d) If 4% compounded daily would give an effective annual rate of (1 + .04/365)^(365)-1, what would the effective annual rate compounded continuously be? In other words, what is limn(1 + .04/n)^n 1?
Explanation / Answer
CONVENTIONAL MORTGAGE $ 25000
INTEREST RATE 4%
A) MORTAGE PERIOD 30 YEARS.
INTEREST PER YEAR = 25000*4%
= $ 1000
REPAYMENT PER YEAR = 25000/30
= $ 833.33
TOTAL REPAYMENT PER YEAR =1833.33
TOTAL REPAYMENT PER MONTH= REPAYMENT PER YEAR /12
= $ 152.77
B) MORTAGE PERIOD 15 YEARS
INTEREST PER YEAR = 25000*4%
= $ 1000
REPAYMENT PER YEAR = 25000/15
= 1666.66
TOTAL REPAYMENT PER YEAR =2666.66/12
= $ 222.22
C) IN THE GIVEN CASE MONTHLY PAYMENT FOR THE 15 YEARS MORTAGE IS $ 222.22 AND 30 YEARS MORTGAGE IS $ 152.77. IN MOST OF THIS TYPE OF CASE THE REPAYMENT AMOUNT WILL NOT BE DOUBLE AS THE INTERST IS LEVIABLE FOR THE HALF PERIOD ( 15 IN THE GIVEN PERIOD).
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.