Question

How much interest (to the nearest dollar) would be saved on the following loan if the home were financed for 15 rather than 30 years? A $516,000 home bought with a 20% down payment and the balance financed for 30 years at 4.8%

Answer 1

Solution :-

Loan Financed = $516,000 * ( 1 - 0.20 ) = $412,800

Monthly Interest Rate = 4.8% / 12 = 0.4%

(i) In case of 30 Years total Payments = 30 * 12 = 360

Now Value of Each Installment = Amount Financed / PVAF ( 0.4% , 360 )

= $412,800 / 190.5977

= $2,165.82

(ii) In Case of 15 Years

Total Payments = 15 * 12 = 180

= Amount Financed / PVAF ( 0.4% , 180 )

= $412,800 / 128.137

= $3,221.552

Interest Paid in case of 15 Years = ( $3221.55 * 180 ) - $412,800 = $167,079.4

Interest Paid in case of 30 Years = ( $2,165.82 * 360 ) - $412,800 = $366,894.61

Therefore interest saved = 366,894.61 - $167,079.4 = $199,815.26

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