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Currently, 30-year and 15-year mortgage loans can be taken with 3% and 2
Currently, 30-year and 15-year mortgage loans can be taken with 3% and 2.5% annual interest rates, respectively. If you want to purchase a $300,000 value house with a 5% down payment. What would be your monthly payments for each mortgage loans; 30-year and 15-year mortgages?
Expert Solution
Computation of Monthly Payment using PMT Function in Excel:
=pmt(rate,nper,-pv,fv)
For 30-Year Mortgage:
Here,
PMT = Monthly Payment = ?
Rate = 3%/12 = 0.25% compounded monthly
Nper = 30 years*12 = 360 months
PV = $300,000*(1-5%) = $285,000
FV = 0
Substituting the values in formula:
=pmt(0.25%,360,-285000,0)
PMT or Monthly Payment = $1,201.57
For 15-Year Mortgage:
Here,
PMT = Monthly Payment = ?
Rate = 2.5%/12 = 0.208% compounded monthly
Nper = 15 years*12 = 180 months
PV = $300,000*(1-5%) = $285,000
FV = 0
Substituting the values in formula:
=pmt(0.208%,180,-285000,0)
PMT or Monthly Payment = $1,900.35
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