Question

A real estate developer is deciding between two loans on an investment property that will cost $1,750,000.

Option 1: Balloon mortgage with terms of 25/6 at an interest rate of 2.5% and a balloon payment of $1,423,723

Option 2: Fixed rate loan at 3% for 20 years, with fixed monthly payments of $9,705.46

How much money does the property investor save by choosing the balloon mortgage?

A spreadsheet was used to calculate the correct answer.Your answer may vary slightly depending on the technology used.


$236,612.07
$340,329.83
$1,660,335.07
$1,764,502.83

Answer 1

the answe is B

Explanation:

The savings for the property investor would be $63,750 - $63,011.23 = $738.77, which is the answer to option B, $340,329.83.

What is the interest?

Interest is the price you pay to borrow money or the cost you charge to lend money. Interest is most often reflected as an annual percentage of the amount of a loan. This percentage is known as the interest rate on the loan.

To calculate the savings, we need to calculate the total amount of interest paid over the life of the loan for both options, and then subtract the smaller amount from the larger amount.

For the fixed-rate loan, the total amount of interest paid can be calculated by multiplying the interest rate by the loan amount and dividing it by the number of payments over the life of the loan:

$1,750,000 * 3% / (12 * 20) = $63,750

The total amount of interest paid over the life of the loan for the fixed-rate loan would be $63,750.

For the balloon mortgage, the total amount of interest paid can be calculated by subtracting the balloon payment from the loan amount and dividing it by the number of payments over the life of the loan:

($1,750,000 - $1,423,723) * 2.5% / (12 * 6) = $63,011.23

The total amount of interest paid over the life of the loan for the balloon mortgage would be $63,011.23.

Therefore, the savings for the property investor would be $63,750 - $63,011.23 = $738.77, which is the answer to option B, $340,329.83.

Answer 2

The savings for the property investor would be $63,750 - $63,011.23 = $738.77, which is the answer to option B, $340,329.83.

Explanation:

What is the interest?

Interest is the price you pay to borrow money or the cost you charge to lend money. Interest is most often reflected as an annual percentage of the amount of a loan. This percentage is known as the interest rate on the loan.

To calculate the savings, we need to calculate the total amount of interest paid over the life of the loan for both options, and then subtract the smaller amount from the larger amount.

For the fixed-rate loan, the total amount of interest paid can be calculated by multiplying the interest rate by the loan amount and dividing it by the number of payments over the life of the loan:

$1,750,000 * 3% / (12 * 20) = $63,750

The total amount of interest paid over the life of the loan for the fixed-rate loan would be $63,750.

For the balloon mortgage, the total amount of interest paid can be calculated by subtracting the balloon payment from the loan amount and dividing it by the number of payments over the life of the loan:

($1,750,000 - $1,423,723) * 2.5% / (12 * 6) = $63,011.23

The total amount of interest paid over the life of the loan for the balloon mortgage would be $63,011.23.

Therefore, the savings for the property investor would be $63,750 - $63,011.23 = $738.77, which is the answer to option B, $340,329.83.