# Jim Thorpe borrows $70,000 toward the purchase of a home at 12 percent interest. His mortgage is

## Question:

Jim Thorpe borrows $70,000 toward the purchase of a home at 12 percent interest. His mortgage is for 30 years.

a. 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.)

b. How much interest will he pay over the life of the loan?

c. 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).

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**Related Book For**

## Foundations of Financial Management

**ISBN:** 978-0077454432

14th edition

**Authors:** Stanley Block, Geoffrey Hirt, Bartley Danielsen