Question

The price of a small cabin is ?$50,000. The bank requires a? 5% down payment. The buyer is offered two mortgage? options: 20-year fixed at 7.57.5?% or? 30-year fixed at 7.57.5?%.

Calculate the amount of interest paid for each option. How much does the buyer save in interest with the? 20-year option?

Find the monthly payment for the? 20-year option.

Find the monthly payment for the 30-year option.

Answer 1

	20 year Option	30 Year Option
Purchased price of Cabin	$50,000.00	$50,000.00
Less: 5% Down Payment	-$2,500.00	-$2,500.00
Amount Borrowed = principal	$47,500.00	$47,500.00
Monthly Rate = 7.575%/12	0.63%	0.63%
Period = 20 x 12 months; 30 x 12 months	240	360
Monthly Payment = PMT(rate,period,-Principal)	$384.84	$334.57
Total payment = PMT x Period	$92,361.13	$120,445.10
Less: Amount Borrowed	$47,500.00	$47,500.00
Interest Paid	$44,861.13	$72,945.10
Interest Saved with the? 20-year option ($72,945.10 - $44,861.13)	$28,083.96