Accountancy
Mail solicitation home equity loan:
Check out this deal! Discover offers a home equity line of credit that consolidates current debts and lowers the total monthly payment. You currently have $25,000 in debt with three loans, all charging an annual interest rate of 15% compounded monthly. After looking at your current debt of $25,000, Discover offers to consolidate your debts, lower your annual interest rate to 10.49% compounded monthly, and lower your monthly payment to $218.60 as shown in table below.
Current Monthly Payment | Discover Home Equity |
Loan Type Loan Amount Monthly Payment | Loan Type Loan Amount Monthly Payment |
Bank cards $10,000 $186.00 Auto loan $12,500 $320.03 Store credit $2,500 $78.63 | PAID OFF NONE PAID OFF NONE PAID OFF NONE |
Discover $25,000 $218.60 |
a) How much money would this Discover offer save you each month?
b) How long will it take to pay off each of the three debts under the current plan?
c) If you accept the Discover offer, how much money will still be owed 10 years from now?
d) By the end of the 10 years, how much money has been spent? Explain what has happened to this money.
e) How much would the monthly payment have to be to have the debt completely paid in 10 years?
f) Would you accept the Discover Home Equity offer or stay with the current loans? Explain your choice.
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