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Question 363405: On November 3, 2003, the average interest rates were:
(a) 5.0% on 30-year mortgages
(b) 4.875% on 15-year mortgages
1. For each of these loans, calculate the monthly payment for a loan of $150,000. All answers should be rounded to the nearest hundredth since you will be dealing with money. It is important that you do not round until your final answer due to round off errors.
2. Then compute the total amount paid over the term of the loan.
3. Finally, calculate the interest paid.
Answer by Theo(13342)   (Show Source):
You can put this solution on YOUR website! On November 3, 2003, the average interest rates were:
(a) 5.0% on 30-year mortgages
(b) 4.875% on 15-year mortgages
1. For each of these loans, calculate the monthly payment for a loan of $150,000. All answers should be rounded to the nearest hundredth since you will be dealing with money. It is important that you do not round until your final answer due to round off errors.
2. Then compute the total amount paid over the term of the loan.
3. Finally, calculate the interest paid.
monthly payment on 30 year mortgage of $150,000 at 5% per year is equal to $805.2324345.
total amount paid over the length of the loan is equal to $289,883.6764.
interest paid on the loan is equal to $139,883.6764.
monthly payment on 15 year mortgage of $150,000 at 4.75% per year is equal to $1166.747877
total amount paid over the length of the loan is equal to $210,014.6178
interest paid on the loan is equal to $60,014.61778
In calculating these amounts, you need to do the following:
In the first loan, the number of time periods is equal to 30 * 12 = 360, and the interest rate per time period is equal to .05/12 = .004166667.
In the second loan, the number of time periods is equal to 15 * 12 = 180, and the interest rate per time period is equal to .0475 / 12 = .003958333
The formulas assume monthly payments with each payment made at the end of each month.
The formulas you would use are contained in the following lesson that you should review.
http://www.algebra.com/algebra/homework/Finance/FINANCIAL-FORMULAS-101.lesson
The formula you are looking for is the payment for a present value formula which is the last one shown in that lesson.
You use the formula to calculate the payments per month.
You multiply the payments per month by the number of time periods to get the total amount paid.
You subtract the original loan amount from the total amount paid to get the interest paid on the loan.
I used a financial calculator to get you the answers.
I then duplicated the results from the financial calculator by using the formula provided in the lesson.
The answers confirm each other so you should be good.
Try applying the formula yourself and let me know if you have any problems.
It should be fairly straight forward.
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