Assignment - Loan Amortization
You are thinking of purchasing a house that costs $185,000. You have $7,000 in cash that you can use as a down payment, but you need to borrow the rest of the purchase price. The bank is offering a 30-year mortgage that requires monthly payments and has an annual interest rate of 3.9% per year. What will your monthly payments be if you sign up for this mortgage? Draw the amortization schedule on a monthly basis using Excel. Calculate the total amount of interest paid throughout the life of the loan. Create a graph depicting the changes in the portions of interest and principal for each monthly payment throughout the life of the loan.
Suppose the interest rate increases to 5% per year and the length of repayment decreases to 15 years. What will the new monthly payment be? Draw a new amortization schedule in a separate Excel sheet. Calculate the total amount of interest paid throughout the life of the loan. Even though the interest rate is higher, can the total amount of interest paid for the life of the loan is less than the total interest paid in the first amortization schedule? If so, by how much less? Explain.