Finance Assignment Question - Financial Literacy
Consider the following two cases:
Jane: A 30-year accountant called Jane has a permanent job earning $75,000 p.a. and wishes to buy her first home costing $650,000. She has savings of $15,000 in her bank account, which she wishes to use as a down payment on her loan. She approaches an Australian bank who is willing to give her a 20-year mortgage at 6.5% p.a., compounded monthly.
Carla: A 35-year old finance analyst called Carla has a permanent job earning $85,000 p.a. wishes to buy her first home costing $650,000. She has savings of $100,000 in her bank account, which she wishes to use as a down payment on her loan. She approaches an Australian bank who is willing to give him a 15-year mortgage at 4.5% p.a., compounded monthly.
a) Calculate the i) monthly repayments and ii) total interest cost over the term of the loan, for Jane and Carla. Show your calculations.
b) Comment on the difference between the total interest expense that Jane and Carla have to pay. Why do you think this difference exists based on finance theory?