MAT 143 Comparing Loan Options

Chapter 4 LAB B

Please print and complete this lab. Once youve completed the lab, please answer the questions that correspond with this lab in Canvas in the Chapter 4 Answer Entry Sheet located in Chapter 4.

Comparing Loan Options

Learning Outcomes:

Upon completion students will be able to:

Calculate loan payments, total payments and total interest and principal.

Analyze loan options and mortgage options.

Use online tools to determine payments on consumer loans, and to ask appropriate questions about loans.

Scoring/Grading rubric:

Problem 4 is worth 10 points. All other problems are worth 6 points. Total = 100

In this lab, we will compare 3 different loan options. Suppose that you are buying a house for $205,000. The loan is at a fixed APR of 3.5% for 30 years.

Option 1: Making a down payment

1. If a 10% down payment is required, calculate this amount:

$205,000

2. What amount remains to be financed (this will be your loan amount)?

$184,500

3. Use the Loan Payment Formula to calculate your monthly payment

$828.49

4. A table of principal and interest payments over the life of a loan is called an amortization table. Amortization tables can be built by hand but are ideally built with a spreadsheet or using an online tool. Go to Canvas and use the Amortization Table Spreadsheet for Chapter 4 Lab to complete the Amortization Table below.

To use the spreadsheet, enter the loan amount or balance from part (2) as the Loan Amount. Then enter the number of years and interest rate. The spreadsheet will automatically fill. You do NOT have to record the entire spreadsheet, just record the rows that correspond with the table below. Pay attention to what each column means as you will analyze this info later in this lab.

Payment # Monthly Payment Principal Paid Interest Paid Total Interest Balance

Payment#	Monthly Payment	Principal Paid	Interest Paid	Total Interest	Balance
0	N/A	N/A	N/A	N/A	$184,500
1	$828.49	$290.36	$538.13	$538.13	$184,209.64
2	$828.49	$291.21	$537.28	$1,075.41	$183,918.43
3	$828.49	$292.06	$536.43	$1,611.84	$183,626.37
360	$828.49	$824.50	$2.40	$113,754.81

5. Explain two interesting things you notice from looking at the amortization table. In order to receive full credit, you must use complete sentences.

Principal amount is increasing in order to make loan balance lower. Interest amount reducing by the effect of principal reduction.

6. Use the amortization table and record how much total interest you paid.

$113,754.81

7. Calculate the total you paid over the life of the loan (Remember you paid 10% down, so add that in!).

$318,756.40

Option 2: Paying $25 extra toward your monthly payment

8. In the spreadsheet, enter that you will now be paying additional monthly PMT of $25. This will update the values in the spreadsheet Amortization Table. How many months early will you pay off the mortgage?

9. How much total interest will you pay using Option 2 of paying the extra $25 each month?

10. Calculate the total paid over the life of the loan for Option 2.

11. How much does paying that extra $25 per month save you over the life of the loan compared to (#7) in Option 1?

Option 3: NO Down Payment

12. You realize that you cant afford the down payment and surprisingly find a bank that will allow you to finance the entire cost of the house ($205,000) at the same 3.5% APR.

Calculate your new monthly payment using the spreadsheet:

(Change the Loan Amount and change the additional monthly PMT back to $0.)

13. Use the amortization table and record how much total interest you paid.

14. Calculate the total paid over the life of the loan:

15. How much more do you pay over the life of the loan by putting nothing down compared to when you put 10% down in (#7) in Option 1?

16. Explain at least 2 things youve observed from making the above comparisons (down payment vs. no down payment; adding extra $25 per month to your payment). In order to receive full credit, you must use complete sentences.