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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 Monthly Payment Interest Portion Principal Reduction
2. Comparison of a 30-year Amortization vs. 15-year Amortization (3 Parts) Repayment Schedule: $250,000 @ 7% for 30 Years Monthly Payment Interest Portion Principal Reduction Loan Balance PMT # 204.93 1 $250,000.00 249,795.07 249,588.95 249,381.63 1,458.33 1,457.14 1,455.94 1,663.26 1,663.26 1,663.26 2 206.12 207.32 3 359 19.21 1,649.11 9.62 1,663.26 1,663.26 $598,774 1,644.05 1649.11 250,000 0 360 Totals 348,774 Repayment Schedule: $250,000 @ 7% for 15 Years Monthly Payment Interest Portion Principal Reduction PMT # 1 788.74 Loan Balance $250,000.00 249,211.26 248,417.92 247,619.95 2,247.07 2,247.07 2,247.07 2 1,458.33 1,453.73 1,449.10 793.34 3 797.97 359 2,247.07 25.99 2,234.37 2,221.08 2,234.37 360 13.03 0 2,247.07 $404,473 Totals 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: 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: NOTE: Rather than lock into the higher payment required by a 15-year term (that they might have trouble making), some borrowers instead wisely opt for the smaller payment of a 30-year amortization and vow to 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. oShow financial calculator inputs for each problem. Label all items. An error message may result if certain inputs are not entered as a negative. An example is provided for every practice problem. After identifying the type of problem you are facing, refer to the related example for assistance if needed. OREMEMBER: In multi-step problems, an intermediate answer is any answer other than the final answer. Never round an intermediate answer unless that amount is to be paid out or it is recorded in the accounting records. For practical reasons, such amounts are then rounded to the nearest cent. OREMEMBER: i represents the rate per period. If the problem calls for an annual rate, the rate per period may require conversion to the equivalent annual rate
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