Answer:
Chris and Jane
The difference in their monthly payment if they had signed this same note for only a 15-year period is:
= $8,346.57.
Explanation:
Mortgage Note Payable = $250,000
Fixed interest rate = 6.25%
Period of the note = 30 years or 15 years
Difference in monthly payment:
30-year period = $9,022.96
15-year period = $17,369.53
Difference = $8,346.57
b) The computations show that Chris and Jane pay more per month on a 15-year period mortgage than on a 30-year period mortgage. However, the total interest is more with a 30-year period than with a 15-year period. This shows that interest expense increases more with longer periods of debt.
From an online financial calculator:
N (# of periods) 30
I/Y (Interest per year) 6.25
PV (Present Value) 250000
FV (Future Value) 0
Results
PMT = $9,022.96
Sum of all periodic payments = $270,688.83
Total Interest = $20,688.83
N (# of periods) 15
I/Y (Interest per year) 6.25
PV (Present Value) 250000
FV (Future Value) 0
Results
PMT = $17,369.53
Sum of all periodic payments = $260,542.92
Total Interest = $10,542.92
