Jim Thomas borrows $70,000 toward the purchase of a home at 12 percent interest. His mortgage is for 30 years.
a. How much will his annual payments be? (Although home payments are usually on a monthly basis, we shall do our analysis on an annual basis for ease of computation. We will get a reasonably accurate answer.)
b. How much interest will he pay over the life of the loan?
c. How much should he be willing to pay to get out of a 12 percent mortgage and into a 10 percent mortgage with 30 years remaining on the mortgage?
Suggestion: Find the annual savings and then discount them back to the present at the current interest rate (10 percent).© BrainMass Inc. brainmass.com June 3, 2020, 5:14 pm ad1c9bdddf
The solution calculates the annual payments and interest over the life of the loan, and the amount that the borrower would be willing to get out of a 12 percent mortgage and into a 10 percent mortgage with 30 years remaining on the mortgage.