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The price of a home is $200,000. The bank requires a 15% down payment. The buyer...

The price of a home is $200,000. The bank requires a 15% down payment. The buyer is offered two mortgage options: 15-year fixed at 8% or 30-year fixed at 8%. Calculate the amount of interest paid for each option. How much does the buyer save in interest with the 15-year option?

find the monthly payment for the 15-year option

find the monthly payment for the 30-year

Calculate the total cost of interest for both mortgage options. How much does the buyer save in interest with the 15-year option?

Expert Solution

Price of home= $200,000. Down payment =15%

Therefore, net loan amount=$200,000*(1-15%) = $200,000*85% = $170,000

Option 1. Loan for 15 years at 8% interest.

Monthly payments= $1,624.61

Total interest paid = $122,429.54

Detailed computation of monthly payments and relevant portion of amortization schedule are given below:

Option 2: Loan for 30 years at 8% interest

Monthly payments: $1,247.40

Total interest : $279,063.92

Detailed computation of monthly payments and relevant portion of amortization schedule are given below:

Total interest saved in 15 year option= $279,063.92- $122,429.54 =$156,634.38

jeff jeffy answered 6 months ago

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