Question

In: Finance

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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