You want to finance a home mortgage of $200,000, and are considering 2 options.

Question

You want to finance a home mortgage of $200,000, and are considering 2 options. The first is a 30-year mortgage with interest at an annual percentage rate of 3.5%. The second option is a 15-year mortgage with interest at an annual percentage rate of 2.5%. What is the NPW to you of opting for the 15-year mortgage, assuming your MARR is 4%? (NOTE: You do not have to consider any tax implications for this problem, but do recall that in reality, the interest you pay on a mortgage is tax deductible.)

          NPW of amount saved                     

Explanation / Answer

The correct answer is as followS:

NPW = 200000-(200000*(1+2.5%)^15)/(1+4%)^15

=$39162.29

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