HOME MORTGAGE COMPARISON Mark and Alicia Story, recently married, have decided that they want to buya $600,000 house. They are planningto give 20% down payment and finance the rest with a mortgage. Mark and Alicia are now ready to meet wih tChrisVaughan, the loan officer for First United National Bank. The meeting is to discuss the mortgage options available to the company to finance the property. Chris begins the meeting by discussing a 30-year mortgage. The loan would be repaid in equal monthly installments. Because of the previous relationship between Mark and the bank, there would be no closing costs for the loan. Chrisstates that the APR of this loan would be 4.125 percent.Aliciaasks if a shorter mortgage loan is available. Chrissays that the bank does have 25-year,20-year and 15-year mortgages available at4.0, 3.75 and 3.5percentrespectively.Mark decides to askChrisabout a smart loan he heard about from a friend. A smart loan works as follows:Every two weeks a mortgage payment is made that is exactly one-half of the traditional monthly mortgagepayment.Chris informs him that the bankdoes have smart loans. The APR of smart loan would be the same as theAPR of the traditional loans. Mark nods his head. He then asks whether this is the best mortgage option availableto him in order to save interest payments.Chrissuggests that a bulletloan, or balloon payment, would result in the greatest interest savings. At Alicia'sprompting, she goes on to explain a bullet loan. The monthly payments of a bullet loan would be calculated using a10-year traditional mortgageat a rate of 3.375 percent. In this case, there would be a 5-year bullet. This wouldmean that theStoryswould make the mortgage payments for the traditional mortgage for the first five years, butimmediately aftertheymake the 60th payment, the bullet payment would be due. The bullet payment is theremaining principal of the loan. Chris then asks how the bullet payment is calculated.Christells him that theremaining principal can be calculated using an amortization table, but it is also thepresent value of the remaining5 years of mortgage payments for the 30-year mortgage.Aliciahas also heard of an interest-only loan and asks if this loan is available and what the terms would be.Chrissays that the bank offers an interest-only loan with a term of 10 years and an APR of 3.5percent. She goes onto further explain the terms.Markwould be responsible for making interest payments each month on the amountborrowed. No principal payments are required. At the end of the 10-year term, theStoryswould repay that mountthey borrowed. However, theStoryscan make principal payments at any time. The principal payments would workjust like those on a traditional mortgage. Principal payments would reduce the principal of the loan and reduce theinterest due on the next payment.Mark andAliciaare satisfied withChris's answers, but they are still unsure of which loan they should choose.They have asked Chris to answer the following questions to help them choose the correct mortgage.

QUESTIONS 1.What are the monthly payments for the 4 traditional mortgages?If the Storyswant the lowest monthlypayment, which alternative is the best?

2.Assuming that theyplan to live in the house only for five years and that they are only interested in monthly payments, prepare an amortization table for the first five years for the4 alternative loans. Calculate the totalamount paid, the total interest paid, the total principal paid and the remaining balances after 60months. Which alternative has the lowest amount of interest paid in those 5 years? Which alternative has the highest amount of principal paid (the lowest remaining balance)?

3.Assume the Storys get paid biweekly and are really interested in the smart loans. How long would it take to pay off the 4 traditional mortgages if they choose the smart payments plan? How much money do they save by doing smart loans compared to traditional mortgages? HINTS: Use one Excel sheet for each loan mentioned in the case (4-sheets). Once all numbers are available,create tables to compare all options in order to answer the case questions.

** At question 3 following this: (please provide formula for this question)

Bi-weekly payment amount : $

Bi-weekly periods to pay off smart loan:

Years to pay off smart loan:

Total payments under 30-year traditional mortgage:

Total payments for bi-weekly mortgage: