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?
See your previous post, Tyrone.
To calculate the difference in interest payment on a $195,000 home with a 20% down payment, we need to know the interest rate for the second mortgage option mentioned in the question. Since the interest rate is not provided, let's assume it to be 5.5%.
Step 1: Calculate the loan amount
For a $195,000 home with a 20% down payment, the loan amount would be 80% of the home value.
Loan amount = $195,000 x 0.8 = $156,000
Step 2: Calculate the monthly payment for a 30-year mortgage at 6% interest
To calculate the monthly payment for a 30-year mortgage, we can use the formula for the amortization of loans:
M = P[r(1+r)^n]/[(1+r)^n-1]
Where:
M = monthly payment
P = loan amount
r = monthly interest rate
n = number of payments (number of months)
First, we need to convert the annual interest rate to a monthly interest rate:
Monthly interest rate = 6% / 100 / 12 = 0.005 (decimal)
Using the formula, the monthly payment for a 30-year mortgage at 6% interest would be:
M = $156,000[0.005(1+0.005)^360] / [(1+0.005)^360-1]
M ≈ $938.14
Step 3: Calculate the monthly payment for a 30-year mortgage at 5.5% interest
Using the same formula as above, but with the interest rate of 5.5%, the monthly payment would be:
M = $156,000[0.00458(1+0.00458)^360] / [(1+0.00458)^360-1]
M ≈ $883.75
Step 4: Calculate the difference in monthly payments
To find the difference in monthly payments, we subtract the monthly payment for the lower interest rate mortgage from the monthly payment for the higher interest rate mortgage:
$938.14 - $883.75 ≈ $54.39
Therefore, by choosing the 6% interest rate mortgage compared to the 5.5% interest rate mortgage, you would pay approximately $54.39 more towards the monthly payment.
It's worth noting that this calculation does not consider factors such as taxes, insurance, and other costs associated with homeownership beyond the mortgage payment itself.