Jason took out a loan for $500000 and was given the choice to repay it either monthly or fortnightly. If he chooses to pay back monthly, he’ll be paying back $2539 per month. If he chooses to pay fortnightly, it will be $1276 per fortnight. What is the difference in total repayments using the two different methods of payment?
A Reducible Loan is a loan where the interest is paid on the balance owing, or the remaining amount of the loan that is yet to be paid.
First, find the total monthly repayments by multiplying the monthly repayment to 12 (number of months in a year) and to the loan duration (in years).
Monthly Repayment =$2539
Loan Duration =30 years
$2539×12×30
=
$914040
Next, find the total fortnightly repayments by multiplying the fortnightly repayment to 26 (number of fortnights in a year) and to the loan duration (in years).
Fortnightly Repayment =$1276
Loan Duration =24 years
$1276×24×26
=
$796224
Finally, compute for the savings if the fortnightly payment method is chosen.
Years saved:
Years if paid monthly - Years if paid fortnightly
=
30-24
=
6 years
Dollars saved:
Total monthly repayments - Total fortnightly repayments
=
$914040-$796224
=
$117816
If the loan is paid fortnightly, Jason can save 6 years and $117816
$117816
Question 2 of 4
2. Question
In this graph, the balance owing over time is shown for a loan of $550000 which is to be repaid in 30 years. Approximately how much is still owing after 10 years?
A Reducible Loan is a loan where the interest is paid on the balance owing, or the remaining amount of the loan that is yet to be paid.
First, find the 10th year in the graph and draw a vertical line over it until it reaches the red curve.
From the point where the vertical line reaches the red curve, draw a horizontal line until it reaches the loan balance axis.
Since the line stops somewhere between 400000 and 500000, the balance owing after 10 years is approximately $450000.
$450000
Question 3 of 4
3. Question
In this graph, the balance owing over time is shown for a loan of $550000 which is to be repaid in 30 years. How much has the loan reduced after 16 years?
A Reducible Loan is a loan where the interest is paid on the balance owing, or the remaining amount of the loan that is yet to be paid.
First, find the 16th year in the graph.
Draw a vertical line over the 16th year until it reaches the red curve.
From the point where the vertical line reaches the red curve, draw a horizontal line until it reaches the loan balance axis.
Since the line stops somewhere between 300000 and 400000, the balance left after 16 years is approximately $350000.
To find how much was reduced after 16 years, subtract $350000 from the principal amount
Principal Amount =$550000
$550000-$350000
=
$200000
$200000
Question 4 of 4
4. Question
In this graph, the balance owing over time is shown for a loan of $550000 which is to be repaid in 30 years. After how many years will the loan be half-paid?
