SOLUTION: Supposed you have just obtained a 30-year home mortgage in this amount of $216,000 at an APR of 4.5% A) Find the required monthly payment B) Find the monthly payment that you wou

Question 1075940: Supposed you have just obtained a 30-year home mortgage in this amount of $216,000 at an APR of 4.5%
A) Find the required monthly payment
B) Find the monthly payment that you would need to make in order to pay off the loan in 20 years.
C) How much would you save in interest charges by paying off the loan in 20 years as opposed to 30 years?
Answer by jorel1380(3719) (Show Source): You can put this solution on YOUR website!
A)The following formula is used to calculate the fixed monthly payment (P) required to fully amortize a loan of L dollars over a term of n months at a monthly interest rate of c. [If the quoted rate is 6%, for example, c is .06/12 or .005].
P = L[c(1 + c)^n]/[((1 + c)^n)) - 1].
So, we have:
P=216000((.00375*(1+.00375)^360))/((1+.00375)^360)-1)))
P=216000(0.01442886768736313153815180601079/(2.847698049963501743507148269543)
P=216000(0.00506685309825880826287390636924)=$1094.44 as the required monthly payment.
B)Using the same formula as last time, we have:
P=216000((.00375*(1+.00375)^240))/((1+.00375)^360)-1)
P=216000 (0.00632649376219962420615722743331)
P=$1366.52 as the monthly payment.
C)Savings in interest would be:
(1094.44*360)-(1366.53*240)=$66032.96 in savings. ☺☺☺☺
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