SOLUTION: You need $210,000 to buy a new home. The bank offers a choice of a 30 year loan at an APR of 8% or a 15 year loan at 7.5%. Assume the closing costs are the same for both loans. a)

Algebra ->  Finance -> SOLUTION: You need $210,000 to buy a new home. The bank offers a choice of a 30 year loan at an APR of 8% or a 15 year loan at 7.5%. Assume the closing costs are the same for both loans. a)      Log On


   

Question 1050467: You need $210,000 to buy a new home. The bank offers a choice of a 30 year loan at an APR of 8% or a 15 year loan at 7.5%. Assume the closing costs are the same for both loans.
a) Compare the monthly payments for these two loans options.
b) Compare the total loan costs for these two loan options.
c) What are the pros and cons of each loan which option would you choose?
Answer by Fombitz(32388) About Me  (Show Source):
You can put this solution on YOUR website!
Use the monthly payment formula,
M=P%28R%281%2BR%29%5EN%29%2F%28%281%2BR%29%5EN-1%29
where P=210000,
N%5B1%5D=30%2A12=360
N%5B2%5D=15%2A12=180
and
R%5B1%5D=0.08%2F12=0.0067
R%5B2%5D=0.075%2F12=0.00625
.
.
.
Using the formula,
M%5B1%5D=1502.59
M%5B2%5D=1946.73
.
.
.
Total payments multiply the monthly payment by number of periods,
T%5B1%5D=1502.59%2A360=540930.90
T%5B2%5D=1946.73%2A180=350410.67
.
.
.
30 yr - Lower monthly payment but twice as many payments
15 yr - Fewer payments but higher monthly payment