Question

MTH 115 – Principles of Mathematics

Assignment 8.3 – Journal 8

First, complete Technology Assignment 8 before attempting these problems.
You can afford a loan payment of $1200 a month. You have put an offer of $175,000 on a house. You are considering three different loans.

Loan A. P = $175,000 at a rate of 5% with monthly payments for 30 years.

Loan B. P = $175,000 at a rate of 4% with monthly payments for 15 years.

Loan C. P = $175,000 at a rate of 4.5% with monthly payments for 20 years.

Find the payment and total interest for each loan.
Loan A: Payment = Total Interest =
Loan B: Payment = Total Interest =
Loan C: Payment = Total Interest =

Choose the loan you will use and clearly state why you chose that one.

Answer 1

Using the given information, we can use the PMT function in Excel or a financial calculator to find the monthly payment and total interest for each loan.

Loan A:

P = $175,000

r = 5%/12 = 0.004167 (monthly interest rate)

n = 30 years x 12 months/year = 360 months

Payment = $966.45

Total Interest = $153,522.05

Loan B:

P = $175,000

r = 4%/12 = 0.003333 (monthly interest rate)

n = 15 years x 12 months/year = 180 months

Payment = $1,297.53

Total Interest = $33,555.64

Loan C:

P = $175,000

r = 4.5%/12 = 0.00375 (monthly interest rate)

n = 20 years x 12 months/year = 240 months

Payment = $1,095.09

Total Interest = $66,022.37

Based on the information given, I would choose Loan B because it has the lowest total interest and a reasonable monthly payment that fits within my budget of $1200 per month. While Loan A has a lower interest rate, the longer repayment period results in a significantly higher total interest. Loan C has a lower monthly payment, but the longer repayment period also results in a higher total interest.