In terms of paying less in? interest, which is more economical for a ?$80,000 ?mortgage: a?...

In terms of paying less in? interest, which is more economical for a ?$80,000 ?mortgage: a? 30-year fixed-rate at 7?% or a? 15-year fixed-rate at 6.5?%? How much is saved in? interest? Determine which loan is more economical. Choose the correct answer below.

A. The? 30-year 7?% loan is more economical.

B. The? 15-year 6.5?% loan is more economical.

Solutions

Expert Solution

Based on Interest calculation from the excel sheet.below
Interest of the? 30-year 7?% loan = 113407.3684
Interest of the 15-Year 6.5% loan = 47623.33956

Option B is more economical because interest savings = 113407.37 - 47623.34 = 65,784.03

	Amount at the Beginning	PMT=PMT(7%,30,80000)	Interest part of PMT=7.5%* 80000	Principal Amount of EMI	Ending Principal		Amount at the Beginning	PMT=PMT(6.5%,15,80000)	Interest part of PMT= 6.5%* 80000	Principal Amount of EMI	Ending Principal
1	80000	$6,446.91	5600	$846.91	$79,153.09	1	80000	$8,508.22	5200	$3,308.22	$76,691.78
2	$79,153.09	$6,446.91	5540.71614	$906.20	$78,246.89	2	$76,691.78	$8,508.22	4984.965529	$3,523.26	$73,168.52
3	$78,246.89	$6,446.91	5477.28241	$969.63	$77,277.26	3	$73,168.52	$8,508.22	4755.953817	$3,752.27	$69,416.25
4	$77,277.26	$6,446.91	5409.40832	$1,037.50	$76,239.76	4	$69,416.25	$8,508.22	4512.056343	$3,996.17	$65,420.09
5	$76,239.76	$6,446.91	5336.783042	$1,110.13	$75,129.63	5	$65,420.09	$8,508.22	4252.305534	$4,255.92	$61,164.17
6	$75,129.63	$6,446.91	5259.073996	$1,187.84	$73,941.79	6	$61,164.17	$8,508.22	3975.670922	$4,532.55	$56,631.62
7	$73,941.79	$6,446.91	5175.925316	$1,270.99	$72,670.80	7	$56,631.62	$8,508.22	3681.055061	$4,827.17	$51,804.45
8	$72,670.80	$6,446.91	5086.956228	$1,359.96	$71,310.85	8	$51,804.45	$8,508.22	3367.289168	$5,140.93	$46,663.52
9	$71,310.85	$6,446.91	4991.759304	$1,455.15	$69,855.69	9	$46,663.52	$8,508.22	3033.128493	$5,475.09	$41,188.42
10	$69,855.69	$6,446.91	4889.898596	$1,557.01	$68,298.68	10	$41,188.42	$8,508.22	2677.247374	$5,830.98	$35,357.45
11	$68,298.68	$6,446.91	4780.907638	$1,666.00	$66,632.68	11	$35,357.45	$8,508.22	2298.233981	$6,209.99	$29,147.46
12	$66,632.68	$6,446.91	4664.287313	$1,782.62	$64,850.05	12	$29,147.46	$8,508.22	1894.584719	$6,613.64	$22,533.82
13	$64,850.05	$6,446.91	4539.503565	$1,907.41	$62,942.64	13	$22,533.82	$8,508.22	1464.698254	$7,043.52	$15,490.29
14	$62,942.64	$6,446.91	4405.984955	$2,040.93	$60,901.71	14	$15,490.29	$8,508.22	1006.869169	$7,501.35	$7,988.94
15	$60,901.71	$6,446.91	4263.120042	$2,183.79	$58,717.92	15	$7,988.94	$8,508.22	519.2811938	$7,988.94	$0.00
16	$58,717.92	$6,446.91	4110.254586	$2,336.66	$56,381.26			Total Interest	47623.33956
17	$56,381.26	$6,446.91	3946.688547	$2,500.22	$53,881.04
18	$53,881.04	$6,446.91	3771.672886	$2,675.24	$51,205.80
19	$51,205.80	$6,446.91	3584.406128	$2,862.51	$48,343.30
20	$48,343.30	$6,446.91	3384.030697	$3,062.88	$45,280.41
21	$45,280.41	$6,446.91	3169.628986	$3,277.28	$42,003.13
22	$42,003.13	$6,446.91	2940.219156	$3,506.69	$38,496.44
23	$38,496.44	$6,446.91	2694.750637	$3,752.16	$34,744.28
24	$34,744.28	$6,446.91	2432.099322	$4,014.81	$30,729.46
25	$30,729.46	$6,446.91	2151.062415	$4,295.85	$26,433.61
26	$26,433.61	$6,446.91	1850.352924	$4,596.56	$21,837.05
27	$21,837.05	$6,446.91	1528.593769	$4,918.32	$16,918.74
28	$16,918.74	$6,446.91	1184.311473	$5,262.60	$11,656.13
29	$11,656.13	$6,446.91	815.929417	$5,630.98	$6,025.15
30	$6,025.15	$6,446.91	421.7606165	$6,025.15	($0.00)
		Total Interest	113407.3684

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jeff jeffy answered 1 year ago

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