SOLUTION: The Martinezes are planning to refinance their home. The outstanding balance on their original loan is $200,000. Their finance company has offered them two options. (Assume there a

Question 1200939: The Martinezes are planning to refinance their home. The outstanding balance on their original loan is $200,000. Their finance company has offered them two options. (Assume there are no additional finance charges. Round your answers to the nearest cent.)
Option A: A fixed-rate mortgage at an interest rate of 5.5%/year compounded monthly, payable over a 30-year period in 360 equal monthly installments.
Option B: A fixed-rate mortgage at an interest rate of 5.25%/year compounded monthly, payable over a 15-year period in 180 equal monthly installments.
(a) Find the monthly payment required to amortize each of these loans over the life of the loan.
option A:
option B:

(b) How much interest would the Martinezes save if they chose the 15-year mortgage instead of the 30-year mortgage?
Answer by Solver92311(821) (Show Source): You can put this solution on YOUR website!

For each of the loans, calculate the interest rate per period by dividing the annual interest rate by the number of payments per year. Express this number as a decimal. Call this number

is the monthly payment

is the present value, i.e., the original loan amount.

is the number of payments per year, and

is the number of years.

For each of the loans, calculate the following:

Those two calculations will give you the option A and option B answers for part (a).

Multiply the answer for part (a) Option A by 360, and then subtract 200,000 to find the total interest that will be paid if the mortgage is held to maturity.

Multiply the answer for part (a) Option B by 180, and then subtract 200,000.

The difference between those two calculations will be the answer to part (b)

John

My calculator said it, I believe it, that settles it

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