Annuities and Perpetuities

Topics: Annual percentage rate, Interest, Mortgage loan Pages: 4 (1373 words) Published: February 12, 2013
Annuities and Perpetuities
In this assignment different mortgage rates are discussed and compared to know about the cheapest rate. It was supposed to collect mortgage data for 10 years, 15 years and 30 years but unfortunately 10 years mortgage rate was not available for the mortgage lender companies we have selected. In the next step, these rates are converted into Effective Annual Rates (EAR’s) and then requirements are fulfilled in theoretical terms. Rates in Table

When some mortgage loan is borrowed it have to pay back just like all types of loans. Effective Annual Rate (EAR) is a term used for determining the actual annual rate that borrower would pay on the loan. EAR determine actual loan as nominal values differs due to changing interest rates or compounding values. This rate is annual rate of interest which is equivalent to the nominal rate compounded frequently (Effective Annual rate, 2010). Effective annual rate (EAR) can be calculated by formula given below. Effective Annual Rate= (1+k/m)^m-1

K represents nominal interest rate
M represents compounding frequency (15 years, 30 years)

Table 1 Five Mortgage Lenders calculation
Lender name 10 year mortgage rate (%)15 years mortgage rate (%)Effective Annual Rates (EAR 15 years) (%)30 years mortgage rate (%)Effective Annual Rates (EAR 30 years) (%)Time to Maturity LendingTreeN.A2.502.5294 3.253.3016Fixed

MortgagenewsdailyN.A 2.832.8677 3.503.5599Fixed
Three Common Mistakes
Three common mistakes which mostly homebuyers make when they decide for borrowing by looking at quoted mortgage rates are no idea about their credit score, sales contract and services of lawyer. Before deciding about mortgage an investor should be familiar with their credit score if he has low credit score he will have to pay higher so firstly he should increase his...
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