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March 29, 2017

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Suppose a 60,000 martgage is to be amortized at 7.5% interest. Find the total amount of interest that would be paid for each term a) 10 years b) 30 years

  • math - ,

    I will do a) you can do b) the same way

    You don't say, but I will assume there are equal monthly payments

    a) i = .075/12 = .00625
    n = 12(10) = 120

    60,000 = P (1 - 1.00625^-120)/.00625
    60000 = P(84.244742...)
    P = 712.21

    interest paid for the 10-year mortgage
    = 712.21(120) - 60000
    = 25,465.27

    do b) the same way,
    hint: there is only one number you have to change.

    BTW, I don't like to do the calculation at the end for the interest, since it is not really valid.
    We are just doing straight multiplication over a 10 year span without considering that time = money
    e.g. The payment of $712.21 made in month 18 is not really the same as the payment of $712.21 made in month 65.

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