# 4. Joe Levi bought a home in A

4. Joe Levi bought a home in Arlington, Texas, for \$127,000. Heput down 25% and obtained a mortgage for 30 years at 8.00%. What isthe difference in interest cost if he had obtained a mortgage rateof 6.00%? (Use Table 15.1.) (Use 360 days a year. Round yourintermediate values and final answer to the nearest cent.)Difference \$

 Step-1: Calculation of Interest costs at 8% a. Monthly Payment \$          699.18 Working: i. Present Value of annuity of 1 = (1-(1+i)^-n)/i Where, = (1-(1+0.00667)^-360)/0.00667 i 8%/12 = 0.00667 = 136.2317 n 30*12 = 360 ii. Cost of house \$       1,27,000 Down Payment \$          31,750 Mortgage amount \$          95,250 iii. Monthly Payment = Mortgage Amount/Present value of annuity of 1 = \$          95,250 / 136.2317 = \$          699.18 b. Total Interest costs \$ 1,56,453.50 Working: Total Payment = \$          699.18 x 360 = \$ 2,51,703.50 Mortagage Amount \$          95,250 Total Interest Costs \$ 1,56,453.50 Step-2: Calculation of Interest costs at 6% a. Monthly Payment \$          571.07 Working: i. Present Value of annuity of 1 = (1-(1+i)^-n)/i Where, = (1-(1+0.005)^-360)/0.005 i 6%/12 = 0.005 = 166.7916 n 30*12 = 360 ii. Cost of house \$       1,27,000 Down Payment \$          31,750 Mortgage amount \$          95,250 iii. Monthly Payment = Mortgage Amount/Present value of annuity of 1 = \$          95,250 / 166.7916 = \$          571.07 b. Total Interest costs \$ 1,10,335.88 Working: Total Payment = \$          571.07 x 360 = \$ 2,05,585.88 Mortagage Amount \$          95,250 Total Interest Costs \$ 1,10,335.88 Step-3:Calculate difference in Interest Costs Interest Costs at 8% \$ 1,56,453.50 Interest Costs at 6% \$ 1,10,335.88 Difference in interest costs \$     46,117.62

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