Case Information: Mary Jones is in the market for a new home. She will need a $300,000 mortgage in order to purchase her "dream house." Mary is meeting with a loan officer at her bank to discuss some loan options. Information about these options is given below and should help you answer the 6 questions for this case. The seller of her potential new home has agreed to pay for the closing costs in order to entice buyers. Mortgage Option #1: 30 year fixed rate mortgage: A 30-year home mortgage is the most popular option chosen by potential homeowners. This loan would be repaid in equal monthly installments. The monthly installment payments are made up of principal payments (which reduce the principal of the loan) and interest payments (paid to the bank for the use of the money). Since Mary has an excellent credit rating, the bank has offered her 4.0% annual loan rate. Mortgage Option #2: 20 year fixed rate mortgage: The bank also has a 20 year fixed rate mortgage. This loan would also be repaid in equal monthly installments and the bank is willing to offer Mary the same 4.0% annual loan rate. Mortgage Option #3: SMART loan: A smart loan works as follows: every two weeks, Mary will make a mortgage payment that is % of the amount that she would pay for her monthly 30 year mortgage. The APR for the SMART loan is the same as that of the 30 year fixed rate mortgage. This option would save interest as compared to the 30 year fixed rate mortgage option. Mortgage Option #4: Bullet Loan: The loan officer also mentions a bullet loan, which will provide a greater interest savings. For the first 60 months, Mary would pay the bank the same monthly payment as she would for the 30 year fixed rate mortgage. However, the "bullet" payment is due immediately after the 60th payment is paid. The "bullet" payment occurs as Mary must pay the remaining principal on her loan at that time. The remaining principal can be shown as the ending balance in an amortization table after 60 payments are made. Alternatively, thi principal balance may be calculated as a present value of this loan considering 25 years are left on the loan (note that this should be shown as months in the PV calculation). Mortgage Option #5: Interest Only Loan: There is a final mortgage option that the loan officer presents to Mary. An interest-only loan is typically no offered for consumer loans, but the bank has a trial that it is offering currently. For the interest only loan, Mary does not have to make any principal payments on the loan until it is due 10 years from now. In the meantime, she makes monthly interest only payments. The APR for this loan is 2.8%.