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 $194,000 home if you put 30% down and financed the remaining amount with a 30-year mortgage at 5.5% interest compared to a 30-year mortgage at 3.5% interest? (Use the amortization worksheet.)
What does the credit rating have to do with the calculations of the problem ?
Anyway....
What "they" probably want you to do is find the payment in each case (see my previous solution), multiply each by 360, then subtract the original home value from each one.
To calculate the difference in interest payments on two different mortgage rates, we can use an amortization worksheet. An amortization worksheet helps you track the progress of your mortgage payments over time, including the breakdown of principal and interest payments.
Here's how you can calculate the difference in interest payments using an amortization worksheet:
1. Start by calculating the principal amount you'll need to finance based on a 30% down payment. In this case, a $194,000 home with a 30% down payment means you'll need to finance $194,000 * (1 - 0.3) = $135,800.
2. Next, determine the monthly mortgage payment for each interest rate option. You can use an online mortgage calculator or a spreadsheet to calculate this.
For a 30-year mortgage at 5.5% interest, use the following formula:
M = P * (r * (1 + r)^n) / ((1 + r)^n - 1)
where M is the monthly payment, P is the principal amount, r is the monthly interest rate (5.5% / 12 = 0.004583), and n is the total number of monthly payments (30 years * 12 months/year = 360 months).
M = $135,800 * (0.004583 * (1 + 0.004583)^360) / ((1 + 0.004583)^360 - 1) = $767.57 (approximately)
For a 30-year mortgage at 3.5% interest, use the same formula:
M = $135,800 * (0.002917 * (1 + 0.002917)^360) / ((1 + 0.002917)^360 - 1) = $609.91 (approximately)
3. Now that you have the monthly payments for each scenario, you can calculate the total interest paid over the 30-year period for both options.
Total interest paid = (Monthly payment * Number of months) - Principal amount
For the 5.5% interest rate:
Total interest paid = ($767.57 * 360) - $135,800 = $152,125.20 (approximately)
For the 3.5% interest rate:
Total interest paid = ($609.91 * 360) - $135,800 = $94,369.60 (approximately)
4. Finally, calculate the difference in interest payments between the two scenarios.
Difference in interest = Total interest paid (5.5%) - Total interest paid (3.5%)
Difference in interest = $152,125.20 - $94,369.60 = $57,755.60 (approximately)
Therefore, you would pay approximately $57,755.60 more in interest on a $194,000 home if you put 30% down and financed the remaining amount with a 30-year mortgage at 5.5% interest compared to a 30-year mortgage at 3.5% interest.