Question 1

Suppose you have two student loans:

• $15,000 with an APR of 8% for 15 years
• $10,000 with an APR of 9.5% for 20 years

1. Calculate the monthly payment for each loan individually.
2. How much do you pay each month? How long do you have to pay that monthly amount?
3. Over the course of each loan, how much total do you pay? How much of that is interest? How much interest will you pay in total?

You have the opportunity to consolidate these 2 loans into a single loan with an APR of 8% and a term of 12 years.

1. What will be your monthly payment if you consolidate?
2. How does that payment compare with what you are paying on the two loans individually? Does this result make sense to you? Why or why not?
3. What will your total payments be over the life of the loan? How much of that is interest?
4. What are the pros and cons of doing this consolidation?

Question 2

For decades, home ownership has been part of the "American Dream." The McIntosh couple decided to choose a home close to their job locations, and the couple found a home costing $234,900. The couple has also saved 5% of this value in anticipation that their home loan would require it as a down payment (as many do require between 5% and 20% down). At the mortgage company, they learned there are loan options available to them:

15-year fixed with anAPRof 2.8%

30-year fixed with an APR of 3.5%

1. Assuming the couple paid the down payment of 5%, how much money did the mortgage company loan them?
2. What would be the McIntosh's monthly payment for each loan choice presented to them?
3. How much will the couple pay over the life of each loan? What percentage of the total for each would be interest?
4. Which option would you encourage them to choose? Support your answer with what you have discovered from this problem.