Chris and Jane have recently financed the purchase of a new home. They have signed a mortgage note in the amount of $250,000 with a fixed interest rate of 6.25% over 30 years. What would have been the difference, if any, in their monthly payment if they had signed this same note for only a 15-year period

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

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