Question

1. Joe Levi bought a new home in Arlington, Texas for $140,000. He put down 20% and has two options. At bank A he can get a 30 year mortgage at 5.5% and at bank B he can get a 30 year mortgage for 7.5%. He would save $ ________ in total interest by choosing bank A. His monthly payment would be $ ______ lower by choosing bank A.  

Answer 1

A. He would save $ $52992 in total interest by choosing bank A (SEE BELOW EXPLAINATION)

B.His monthly payment would be $147.2 lower by choosing bank A.  ?

EXPLAINATION :

Amount Financed = 140000*0.80 = $112000.

p = Pi/[1-(1+i)^(-n)]
= $783.12 monthly payments at 7.5%
= $635.92 monthly payment at 5.5% annual interest

Total payments at 7.5% = $281923.2
Total Principal = $112000
Total Interest = 281923.2-112000 = $169923.20

Total payments at 5.5% = $228931.20
Total Principal = $11200
Total Interest = $116931.20

Difference in interest between 7.5% and 5.5% interest:
169923.20 - 116931.20 = $52992

Difference in monthly payments between 7.5% and 5.5% interest:
$783.12 - $635.92 = $147.2