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2. Comparison of a 30-year Amortization vs. 15-year Amortization (3 Parts) Repayment Schedule: $250,000 @ 7% for 30 Years PMT # Monthly Payment Interest
2. Comparison of a 30-year Amortization vs. 15-year Amortization (3 Parts) Repayment Schedule: $250,000 @ 7% for 30 Years PMT # Monthly Payment Interest Portion Principal Reduction Loan Balance $ 250,000.00 1 1,663.26 1,458.33 204.93 249,795.07 2 1,663.26 1,457.14 206.12 249,588.95 3 1,663.26 1,455.94 207.32 249,381.63 359 1,663.26 19.21 1,644.05 1,649.11 360 1,663.26 9.62 1649.11 0 Totals 598,774 348,774 250,000 Repayment Schedule: $250,000 @ 7% for 15 Years PMT # Monthly Payment Interest Portion Principal Reduction Loan Balance $250,000.00 1 2,247.07 1,458.33 788.74 249,211.26 2 2,247.07 1,453.73 793.34 248,417.92 3 2,247.07 1,449.10 797.97 247,619.95 179 2,247.07 25.99 2,221.08 2,234.37 180 2,247.07 13.03 2,234.37 0 Totals 404,473 154,473 250,000 2a. What is the difference in the monthly payment amount for each loan? Show work here: $ 2b. What is the difference in the amount of principal paid off with the first payment of each loan? Show work here: $ Problem continues on next page 2c. What is the savings, in total interest, over the life of the loan due to the shorter, 15-year amortization vs. the 30-year term? $ WOW!!! Show work here: 2d. Why is this a big deal? (Think about this.) NOTE: Rather than lock into the higher payment required by a 15-year term (that they might have trouble making), some borrowers instead opt for the smaller payment of a 30-year amortization and make additional principal payments whenever possible. However, as will be evident in the next problem, they then lose the advantage of lower rates on the shorter-term mortgage. Remember: Calculated monthly mortgages are monetary payments and should always be rounded to the nearest cent, even if it is an intermediate calculation. (This is different from your Connect assignments.) Again, mortgages are always monthly for this class.
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