Random math question and my excel skills are failing me

[Gin1984]

If you had two loan options, each for 10 years.  One was 3.25% all the way through and the other was 1.99% for the first year and 4% for the next 2 and then dropped to 3%, which would be the least cost?  And can someone walk me through how to do this in excel?

[dandarc]

Is this a situation with a fixed payment? Such that both loans will be at $0 at the end of the term.

And are you asking in terms of nominal dollars out or inflation-adjusted, or something else?

[Runrooster]

If you had two loan options, each for 10 years.  One was 3.25% all the way through and the other was 1.99% for the first year and 4% for the next 2 and then dropped to 3%, which would be the least cost?  And can someone walk me through how to do this in excel?

(1+.0325)^10 is the first loan =1.3768
(1+0.0199)(1.04)^2(1.03)^7 is the second loan =1.3567, this wins.

That's assuming you're not making payments on it.

[dandarc]

I ran a quick amortization schedule assuming you make the same payment of $118.73 (the amount needed for a fixed payment for the level-rate loan to be zero at the end) in each scenario and it agree's with Runrooster's analysis that the more complicated interest rates are a bit less expensive than the flat rate.

When option A gets to $0, option B gets to ($8.90) if the starting balance was $1,000. So if you did this, you could have a fast-food lunch in ten years in addition to paying the loan off.

[KarefulKactus15]

I just recently learned to use the PMT function.

This was way beyond what I could have figured out.