Question

Suppose you can find a house that you want to buy. You have negotiated with the sellers and have agreed upon a price of $270,000. We are going to explore various options and how these options will impact the overall cost of the loan.

Payment Frequency

Monthly

If you make monthly payments with an interest rate of 4.5% for 30 years, how much will your payments be? $

How much do you pay over the life of the loan? $

How much of that is interest? $

Bi-Weekly

If you make payments every two weeks (26 payments in a year) with an interest rate of 4.5% for 30 years, how much will your payments be? $

How much do you pay over the life of the loan? $

How much of that is interest? $

Rate

r = 4.5%

If you make monthly payments with an interest rate of 4.5% for 30 years, how much will your payments be? $

How much interest did you pay over the life of the loan? $

r = 5.5%

If you make monthly payments with an interest rate of 5.5% for 30 years, how much will your payments be? $

How much interest did you pay over the life of the loan? $

r = 6.5%

If you make monthly payments with an interest rate of 6.5% for 30 years, how much will your payments be? $

How much interest did you pay over the life of the loan? $

Time

15 years

If you make monthly payments with an interest rate of 4.5% for 15 years, how much will your payments be? $

How much interest did you pay over the life of the loan? $

20 years

If you make monthly payments with an interest rate of 4.5% for 20 years, how much will your payments be? $

How much interest did you pay over the life of the loan? $

30 years

If you make monthly payments with an interest rate of 4.5% for 30 years, how much will your payments be?$

How much interest did you pay over the life of the loan? $

40 years

If you make monthly payments with an interest rate of 4.5% for 40 years, how much will your payments be?$

How much interest did you pay over the life of the loan? $

Extra Payment

Now suppose you make an extra payment at the beginning of the loan. Suppose you pay an extra $1000. Treat this a down payment coming off of the original price. If you make monthly payments with an interest rate of 4.5% for 30 years, how much will your payments be? $

How much interest did you pay over the life of the loan? $ (Don't forget to include the $1000 in the amount of money you pay over the life of the loan.)

Conclusion

Let's now organize our information we found in a table. For each entry, record the interest you paid.

Base	Frequency	Rate		Time			Extra Payment
30 year r = 4.5% Monthly	30 year r = 4.5% Bi-Weekly	30 year r = 5.5% Monthly	30 year r = 6.5% Monthly	15 year r = 4.5% Monthly	20 year r = 4.5% Monthly	40 year r = 4.5% Monthly	30 year r = 4.5% Monthly Extra $1000
$	$	$	$	$	$	$	$

What have you learned about mortgages? A quality answer should be written in complete sentences and indicate what mortgage options have the biggest impact on the money that comes out of your pocket.

(PLEASE PUT ANSWERS BY QUESTIONS OR LABEL WHERE THE ANSWER GOES TO)

Answer 1

As per rules I am answering the first 4 subparts of the question

1: If you make monthly payments with an interest rate of 4.5% for 30 years, how much will your payments be? $1,368.05

Using financial calculator

Input: PV = -270000

I/Y = 4.5/12

N = 30*12 = 360

Solve for PMT $1,368.05

2: How much do you pay over the life of the loan? $492,498.12

PMT*Period

= $1,368.05 *360

3: How much of that is interest? $222,498.12

=Total payment- initial PV

= $492,498.12 - 270000

4: If you make payments every two weeks (26 payments in a year) with an interest rate of 4.5% for 30 years, how much will your payments be? $631.11

Using financial calculator

Input: PV = -270000

I/Y = 4.5/26

N = 30*26 = 780

Solve for PMT $631.11