Posted by **tracy** on Wednesday, November 7, 2012 at 10:13pm.

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

- algebra -
**Many**, Wednesday, November 7, 2012 at 10:18pm
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 -
**Reiny**, Wednesday, November 7, 2012 at 10:36pm
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?

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