The Application of Fractional Differential Equation to Mortgage Problem

Abstract

Suppose a customer takes out a xed rate mortgage for p Naira at an interest rateof R% per year, and wants to pay o the loan in Z years. The immediate task is tond out what the annual payment should be so that the loan is indeed cleared in Zyears. In this work, we model this mortgage problem using dierence equation andapproximate the solution of the problem using a fractional dierential equation.We thus make comparison between the solutions obtained from the conventionalapproach for calculating such debt and the fractional dierential equation approachusing a graph. We thereby make the conclusion that the use of fractional dierentialequation method enables a customer to pay o loans more quicker.