Answer:
Difference in monthly payment=$407.0339
Explanation:
<em>Loan Amortization: A loan repayment method structured such that a series of equal periodic installments will be paid for certain number of periods to offset both the loan principal amount and the accrued interest.
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The monthly installment is computed as follows:
Monthly installment= Loan amount/annuity factor
Loan amount; =220,000
Annuity factor = (1 - (1+r)^(-n))/r
r -monthly rate of interest, n- number of months
First option
monthly interest rate = 5.5% =0.458
%, n- 15×12
Annuity factor= (1-(1+0.055)^(-180
)/0.055 =122.38
Monthly repayment = 220,000/122.386
= 1797.58
Second option
r- 6.5%/12 = 0.542 % n = 15×12 = 180
Annuity factor = ( 1- (1+0.00542)^(-360))/0.005
42= 158.21
Monthly installment = 220,000/1390.549 = 1390.54
Difference in monthly payment = 1,797.583 - 1390.54 = 407.0339
Difference in monthly payment=407.0339
