Carolina is considering a purchase of a new warehouse for its expanding parts division. Purchase will be financed with a $4,000,000 loan. The term of the loan: 15 years, amortizing (monthly payments), APR of 4.80%. The first payment is due one month from the day loan is taken. What will be the amount of each monthly payment? Alternatively, Carolina can use 20-year, monthly amortizing loan with 5.40% APR. How much more in total interest Carolina will pay if it goes with 20-year rather than 15-year loan? (Assume no pre-payments, refinancing, late payments etc.)
| Loan A | Loan B | |
| Loan = principal | $4,000,000.00 | $4,000,000.00 |
| Term (Nper) = 15 x 12 months ; 20 x 12 months | 180 | 240 |
| Rate = 4.80%/12 ; 5.40%/12 | 0.40% | 0.45% |
| Monthly Payments = PMT(rate,nper,-Principal) | $31,216.58 | $27,290.06 |
| Total Payments = Monthly payment x term (a) | $5,618,983.93 | $6,549,615.27 |
| Less: Principal (b) | -$4,000,000.00 | -$4,000,000.00 |
| Total Interest paid (a -b) | $1,618,983.93 | $2,549,615.27 |
| Total interest Carolina will pay if it goes with 20-year rather than 15-year loan ($2549615.27 -$1,618,983.93) | $930,631.33 |
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