Determine the regular payment amount, rounded to the nearest dollar.
The price of a home is $160,000. the bank requires a 15% down payment. The buyer is offered two mortgage options: 1 year fixed at 8% or 30-year fixed at 8%. Calculate the amount of interest paid for each option. how much does the buyer save in interest with the 15-year option?
I tried the loan calculator it didn't work
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To determine the regular payment amount, we need to calculate the loan amount first. Since the bank requires a 15% down payment, we subtract 15% of the home price from the total price to get the loan amount.
Loan amount = Home price - (15% of Home price)
Loan amount = $160,000 - (15/100 * $160,000)
Loan amount = $160,000 - $24,000
Loan amount = $136,000
Now, let's calculate the regular payment amount for each mortgage option.
Option 1: 1-year fixed at 8%
For a one-year fixed mortgage, we assume that the loan is repaid in one year. To calculate the monthly payment, we divide the loan amount by 12 (months).
Monthly payment for Option 1 = Loan amount / Number of months
Monthly payment for Option 1 = $136,000 / 12
Monthly payment for Option 1 = $11,333.33
To round the monthly payment to the nearest dollar, we round the value to the nearest whole dollar, which in this case is $11,333.
Option 2: 30-year fixed at 8%
For a 30-year fixed mortgage, the loan is paid off over 30 years. To calculate the monthly payment, we need to use a mortgage amortization formula.
Assuming the interest is compounded monthly, the formula is:
Monthly payment for Option 2 = Loan amount * (Annual interest rate / 12) / (1 - (1 + (Annual interest rate / 12))^(-Number of months))
Monthly payment for Option 2 = $136,000 * (8/100 / 12) / (1 - (1 + (8/100 / 12))^-360)
Using a mortgage calculator or spreadsheet software would greatly simplify this calculation. However, if your loan calculator isn't working, you can try online mortgage calculators or find downloadable ones that can run on your computer.
Once you determine the monthly payment for Option 2, you can round it to the nearest dollar.
To calculate the amount of interest paid for each option, multiply the monthly payment by the number of months and subtract the loan amount.
Interest paid for Option 1 = (Monthly payment for Option 1) * 12 - Loan amount
Interest paid for Option 2 = (Monthly payment for Option 2) * 360 - Loan amount
To determine how much the buyer saves in interest with the 15-year option, subtract the interest paid for Option 1 from the interest paid for Option 2.
Savings in interest = Interest paid for Option 2 - Interest paid for Option 1
I hope this explanation helps you calculate the regular payment amount and interest paid for each mortgage option.