SOLUTION: Charmaine is applying for a mortgage of $197,000 amortized over 20 years. The bank offers the following rates: One-year term: 7.25%, Two-year term: 7.6%, Three-year term: 7.8%, Fou

Algebra ->  Customizable Word Problem Solvers  -> Finance -> SOLUTION: Charmaine is applying for a mortgage of $197,000 amortized over 20 years. The bank offers the following rates: One-year term: 7.25%, Two-year term: 7.6%, Three-year term: 7.8%, Fou      Log On

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Question 1163692: Charmaine is applying for a mortgage of $197,000 amortized over 20 years. The bank offers the following rates: One-year term: 7.25%, Two-year term: 7.6%, Three-year term: 7.8%, Four-year term: 7.95%, Five-year term: 8.05%, and Seven-year term: 8.25%.
What is the current difference in monthly payments between the one-year term and the four-year term?
Answer by Theo(13342) About Me  (Show Source):
You can put this solution on YOUR website!
correct me if i'm wrong, but i believe you are talking about a balloon payment mortgage.
this type of mortgage calculates monthly payments based on a 20 year fixed loan, but the loan matures at the end of the term specified.
this means you have a balloon payment at the end of the loan that is due to the lender.
how you satisfy that balloon is not specified, i.e., you pay cash, you take another loan out, you sell the property, etc ........
there is an online calculator that will calculate the balloon payment for you.
that calculator can be found at https://www.mortgagecalculator.org/calcs/balloon.php#currentrates

my inputs to that calculator are shown below:

1 year term loan

loan amount = 197000
annual interest rate = 7.25%
initial loan term = 1
upfront payment = 0
loan origination fee = 0
add origination fee to loan = no
amortization schedule = 20

calculator comes back with:

balloon payment required at end of loan = 192,448.75
monthly payment = 1,557.04

4 year term loan

loan amount = 197000
annual interest rate = 7.95%
initial loan term = 4
upfront payment = 0
loan origination fee = 0
add origination fee to loan = no
amortization schedule = 20

calculator comes back with:

balloon payment required at end of loan = 178,055.60
monthly payment = 1,641.66

the outputs from that calculator are shown below:

1 year term loan



4 year term loan'



i also used excel to calculate the monthly payment and to find the balloon payment.

those results are shown below:

one year term loan:



4 year term loan:





i believe the questions was:

What is the current difference in monthly payments between the one-year term and the four-year term?

the answer to that would be:

the difference between the monthly payment on the 1 year term loan and the 4 year term loan is:

1641.66 minus 1557.04 = $84.62

the monthly loan payment amount on the 4 year term loan is $84.62 higher than the monthly loan payment amount on the 1 year term loan.