Question

The Martinezes are planning to refinance their home. The outstanding balance on their original loan is $150,000. Their finance company has offered them two options. (Assume there are no additional finance charges. Round your answers to the nearest cent.)

Option A: A fixed-rate mortgage at an interest rate of 4.5%/year compounded monthly, payable over a 25-year period in 300 equal monthly installments.

Option B: A fixed-rate mortgage at an interest rate of 4.25%/year compounded monthly, payable over a 12-year period in 144 equal monthly installments.

(a) Find the monthly payment required to amortize each of these loans over the life of the loan.

Option A: ____$

Option B: ____$

(b) How much interest would the Martinezes save if they chose the 12-year mortgage instead of the 25-year mortgage?
$ ______

Answer 1