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Megan C
Megan C, Certified Public Accountant (CPA)
Category: Finance
Satisfied Customers: 15269
Experience:  Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
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Alan and Barbara are in the process of purchasing their first

Resolved Question:

Alan and Barbara are in the process of purchasing their first home. However, they cannot decide whether a 15-year fixed rate mortgage or a 30-year fixed rate mortgage is best for them. they have decided to finance $200,000 and can get the 15-year mortgage at 4.5% and the 30-year mortgage at 5%.

Calculate the monthly payment of each loan.

Discuss the pros and cons of a 15-year mortgage versus a 30-year mortgage.
Submitted: 1 year ago.
Category: Finance
Expert:  Megan C replied 1 year ago.
Thank you for your question, and thanks for using JustAnswer.com.

The 15 year note is $1,529.99 per month
The 30 year note is $1,013.37 per month

The pros of having a 15 year mortgage is you pay less interest over the life o f the loan, and your house is paid off quicker. The cons are the payment is larger so you have less cash flow each month. Also you will have less monthly interest so your mortgage interest deduction will be lower.

The pros of having a 30 year mortgage are that you will pay more interest, therefore you will be able to deduct more interest expense on your tax return. You also have a lower monthly payment, so your monthly cash flow is greater. The cons to having a 30 year mortgage are that it takes longer to pay off the loan, and you pay a lot more interest over the life of the loan than you would a 15 year note.

Please let me know if you need further assistance. Thanks again for using JustAnswer.com and have a great day. Please rate my response "excellent" so that I may receive credit for assisting you today. Thanks again
Customer: replied 1 year ago.


can you show your calculations for the monthly payments please?

Expert:  Megan C replied 1 year ago.
P = (Pv*R) / [1 - (1 + R)^(-n)]

1529.99 = (200,000*(4.5%/12)) / [1-(1+4.5%)^180]
1,037.37 = (200,000*(4.5%/12)) / [1-(1+4.5%)^360]

Or, in Excel you can type the following formula:

=pmt(.045/12,180,-200,000)
=pmt(.045/12,360,-200,000)

Thanks!

Please rate my response "excellent" so that I may receive credit for assisting today. Thanks again.
Megan C, Certified Public Accountant (CPA)
Category: Finance
Satisfied Customers: 15269
Experience: Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
Megan C and 2 other Finance Specialists are ready to help you
Expert:  Megan C replied 1 year ago.
Thank you for the positive rating. If you ever need another question answered please just let me know. It was a pleasure working with you and I hope you have a great day.

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