Assignment 5  Loans

1.  You are interested in buying a new home that costs $280,000.  The mortgage company requires a down payment of 15% of the cost of the home.  You will borrow the rest.  The mortgage company offers you 2 options.  Option 1 is a 15 year loan with an APR of 6.75% and option 2 is a 30 year loan with an APR of 5.55%.  

a. For each option, find the monthly mortgage payment, the total amount paid back and the total amount of interest paid.  Write these in your Word document.  Copy and paste the first 3 and the last three lines of your excel sheet for each option in our word document. 

b.  Which option would you choose and why?

2. You want to buy a new car for $12,000.  The dealership offers you two options for financing the cost of the car.  Option 1 is 7.5% APR to be paid back in 3 years and option 2 is 6% APR to be paid back in 5 years. 

a. What is the monthly payment for each loan? Copy and paste the first 3 and the last three lines of your excel sheet for each option in our word document. 

b. Assuming you can afford the monthly payments for each option, which option is preferable and how much money does it save compared to the other? (Hint. Calculate the total payments made for each loan over the entire duration of the loan.)