Problem: Jim Thomas borrows $70,000 toward the purchase of a home at 12 percent interest. His mortgage is for 30 years.
Q1. How much will his annual payments be? (Although home payments are usually on a monthly basis, we shall do our analysis on an annual basis for ease of computation. We will get a reasonably accurate answer.)
Q2. How much interest will he pay over the life of the loan?
Q3. How much should he be willing to pay to get out of a 12 percent mortgage and into a 10 percent mortgage with 30 years remaining on the mortgage?
Suggestion: Find the annual savings and then discount them back to the present at the current interest rate (10 percent).