Please use excel if applicable Susan wants to buy a house for $400,000. US Bank
ID: 2800031 • Letter: P
Question
Please use excel if applicable
Susan wants to buy a house for $400,000. US Bank will give her the loan at 3% for 30 years if she puts 20% down and Dacotah Bank will give her the loan at 3.5% for 30 years if she puts 10% down. There are NO other options. (15 PTS)
Which loan should she sign up for? Pick one, no explanation needed. What is her monthly payment? (5 PTS)
After 5 years, Susan is approached by a philanthropic group known as C.S.C. They offer to lend her $80,000 interest free for an indefinite period of time, provided she joins their group. Susan takes up the offer and uses the money to pay off some of her mortgage. What will be her new NPER (how many years will it take for her to pay off her remaining mortgage)? (5 PTS)
After another 7 years (12 years from start), a private bank offers to take over the remaining mortgage at 2.5%. What will be her first month interest payment if she signs up with them? (To do this, find the remaining mortgage after 12 years. Use this mortgage amount as the new principle. First month interest payment will be the monthly rate multiplied by principle). (5 PTS)
Explanation / Answer
a) Susan should choose US Bank. Her monthly payment in this case would be $1,349.13. Although explanation is not required, the reason is that the interest paid by Susan in Dacotah Bank is more than in the case with US Bank.
Sample calculation is given below for US bank, full table is not shown due to space constraints, full working is available in excel (Downpayment is 20%, and hence loan is 400,000 * 80% = 320,000)
b) After 5 years (i.e. 60 monthly instalments, outstanding is $284,500). Afterpaying $80,000, if the monthly instalment remains $1349.13, Susan is able to repay whole loan by instalment 250 i.e. NPER is 20 years, 10 months
c) Assuming continuation of part b, after 12 years i.e. 144 monthly instalments, outstanding is $126,290.85. Hence first monthly interest payment would be $126,290.85* 2.5%/12 = $263.11 Answer
Instalment Interest Principal Total Outstanding Instalment 1 800.00 549.13 1,349.13 319,450.87 Instalment 2 798.63 550.51 1,349.13 318,900.36 Instalment 3 797.25 551.88 1,349.13 318,348.48 Instalment 4 795.87 553.26 1,349.13 317,795.22 Instalment 5 794.49 554.64 1,349.13 317,240.57