Question

1. on a $150,000.00 home loan, Brian can either finance at 8.2% for 20 years or 30 years. He would make monthly payments. Find his payments for the 20 year loan. Find his payments for the 30 year loan. Find the total paid over the 20 year loan. Find the total paid over the 30 year loan. Which loan do you pay more interest on. How much more interest is paid? Are you shocked at the difference?

Answer 1

1. EMI if Period is 20 Years:

EMI = Loan / PVAF (r%,n)

= $ 150,000 / PVAF (0.6833%, 240)

= $ 150,000 / 117.7954

= $ 1273.39

Total Amount Paid = EMI * Instalments

= $ 1273.39 * 240

= $ 305,614.7

Int Paid = Total Amount Paid - Principal

= $ 305,614.7 - $ 150,000

= $ 155,614.7

2. EMI if Period is 30 Years:

EMI = Loan / PVAF (r%,n)

= $ 150,000 / PVAF (0.6833%, 360)

= $ 150,000 / 133.7338

= $ 1121.63

Total Amount Paid = EMI * Instalments

= $ 1121.63 * 360

= $ 403,787.30

Int Paid = Total Amount Paid - Principal

= $ 403,787.3 - $ 150,000

= $ 253,787.3

Excess Int paid = INT under 30 Year Loan - Int if Paid in 20 yeasr

= $ 253,787.3 - $ 155,614.7

= $ 98,172.55

Not shocked as the Instalments increased, EMI amount will be decreased, Thus major portion of earlier EMIs will be adjusted to Int & Less portion is adjuseted to principal repay.