Posted by tracy on .
The price of a small cabin is $85000 the bank requires a 5% down payment the buyer is offered two mortgage options: 20 year fixed at 9.5% or 30 year fixed at 9.5% calculate the amount of interest paid for each option how much does the buyer save in interest with the 20 year option
Deposit 5% = 5%X$85000 = $4250
Amount left = $85000 - $4250 = $80750
One year interest = 9.5% X $80750 = 7671.25
20 years interest = $153425
30 years interest= $230137.50
Saving is $76712.5
Tracy , Many's answer not valid - algebra -
Sorry Many, but there two major flaws with your answer.
1. You are using simple interest, but mortgages are based on compound interest
2. You can't just multiply the first year's interest times 20 and 30. Are there no payments made? If payments are made then the annual interest paid would be decreasing.
The question requires much more complicated arithmetic. You would first of all find the monthly payments for each of the options and go from there.
Tracy, at what level of mathematics are you studying this?
the price of a small cabin $85000 the bank requires a 5% down payment the buyer is offered two mortgage option 20-year fixed at 10% or 30-year fixed at 10% calculate the amount of interest paid for each option. how much does the buyer save in interest with the 20 year option?