Mortgage lenders base the mortgage interest rate they offer you on your credit rating. This makes it financially critical to maintain a credit score of 700 or higher. How much more interest would you pay on a $195,000 home if you put 20% down and financed the remaining with a 30-year mortgage at 6% interest compared to a 30-year mortgage at interest?
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To calculate the difference in interest paid on a $195,000 home with a 20% down payment and a 30-year mortgage at 6% interest compared to a different interest rate, we need to know the second interest rate.
Let's assume the second interest rate is 4%. We can now calculate the difference in interest paid over the life of the mortgage.
Step 1: Calculate the loan amount
To find the loan amount, subtract the down payment from the total home price:
Loan Amount = Total Home Price - Down Payment
Loan Amount = $195,000 - 20% * $195,000
Loan Amount = $195,000 - $39,000
Loan Amount = $156,000
Step 2: Calculate the monthly payments
To calculate the monthly payment, we can use the following formula:
Monthly Payment = (Loan Amount * Monthly Interest Rate) / (1 - (1 + Monthly Interest Rate) ** (-Number of Payments))
For a 30-year mortgage, the number of payments would be 30 * 12 = 360 months.
At 6% interest rate:
Monthly Interest Rate = 6% / 100 / 12 = 0.005
At 4% interest rate:
Monthly Interest Rate = 4% / 100 / 12 = 0.003333
Let's calculate the monthly payments for both interest rates:
Monthly Payment (at 6%) = ($156,000 * 0.005) / (1 - (1 + 0.005) ** (-360))
Monthly Payment (at 4%) = ($156,000 * 0.003333) / (1 - (1 + 0.003333) ** (-360))
Step 3: Calculate the total interest paid
To find the total interest paid over the life of the mortgage, we multiply the monthly payment by the total number of payments and subtract the loan amount:
Total Interest Paid (at 6%) = (Monthly Payment (at 6%) * 360) - $156,000
Total Interest Paid (at 4%) = (Monthly Payment (at 4%) * 360) - $156,000
Step 4: Calculate the difference in interest paid
To find the difference in interest paid, subtract the total interest paid at the lower interest rate from the total interest paid at the higher interest rate:
Difference in Interest Paid = Total Interest Paid (at 6%) - Total Interest Paid (at 4%)
By performing these calculations, you can determine the exact difference in interest paid on a $195,000 home loan with a 20% down payment and a 30-year mortgage at 6% interest compared to a 30-year mortgage at a different interest rate.