Question

Your friends suggest that you take a 15-year mortgage, because a 30-year mortgage is too long and you will pay a lot of money on interest. If your bank approves a 15-year, $900,000 loan at a fixed nominal interest rate of 10% (APR), then the difference in the monthly payment of the 15-year mortgage and 30-year mortgage will be$1,773.35 ?(Note: Round the final value of any interest rate used to four decimal places. )

Answer 1

Yes, the answer is correct, please consider the following calculations.

Step-by-step explanation:

Monthly payment of a loan is given by

P = L[r(1 + r)^n]/[(1 + r)^n - 1]

P - Monthly payment = ?

r - Interst rate = 0.1/12 = 0.00833

n - Term = 15*12 = 180

L - Loan amount = 900000

P = 900000[0.00833(1 + 0.00833)^180]/[(1 + 0.00833)^180 - 1] = $9671.4461

Monthly payment for 30-year loan

P = 900000[0.00833(1 + 0.00833)^360]/[(1 + 0.00833)^360 - 1] = $7898.1441

Difference = 9671.4461 - 7898.1441 = $1773.3019