Assignment#1 Loan Amortization

A.

You are thinking of purchasing a house that costs $

235,000.You have $12,000 in cash that you can use as adown payment, but you need to borrow the rest of the purchase price. Assume there are no closing costs

The bank is offering a 30- year mortgage that requires monthly payments and has an annual interest rate of 4.25% per year.-What will your monthly payments be if you sign up for this mortgage?

-Present

the amortization schedule

(Beginning balance, Monthly payment, Principal payment, Interest

payment, Ending balance, on a monthly basis using Excel. Calculate the total amount of interest paid throughout the life of the loan

(sum up the amounts in the

Interest column) Create a graph depicting the changes in the portions of interest and principal for each monthly payment throughout the life of the loan.

B.

Suppose you have the option to take out a 15 year mortgage with an annual interest rate of 3.55%. What will the new monthly payment be? Present a new amortization schedule(Beginning balance, Monthly payment, Principal payment, Interest payment, Ending balance) on a new excel worksheet. Calculate the total amount of interest paid throughout the life of the loan(sum up the amounts in the Interest column)

Create a graph depicting the changes in the portions of interest and principal for each monthly payment throughout the life of the loan.

C. How much do you save if you go with the 15 year mortgage versus the 30 year mortgage example above? Compute the difference between the total interest paid in parts A and B.

Grading r u b r i c Points A. Spreadsheet analysis of time value of money problem(loan amortization):Correct calculation of monthly loan payment 20pts

Determination of interest and principal for each payment 20 pts

Amortization schedule is complete and loan balance is zero 30 pts

Graph depicting the changes in the portions of interest and principal for each monthly payment throughout the life of the loan is correct 10Student can identify impact of changes in loan terms on payments and ultimate cost of the loan 20 pts