Question

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 740 or higher. How much more interest would you pay on a $207,000 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 3.5% interest? (Do not round intermediate calculations. Round your answer to the nearest cent.)

Answer 1

Loan amount	(207000*80%)
Loan amount	$165,600
Monthly payments	Loan value/((1-(1+r^-n)/r)
r is monthly interest rate and n is number of payments
r = 6%/12 = 0.005
n = 360 (30*12)
Monthly payments	165600/((1-(1.005^-360)/0.005)
Monthly payments	165600/166.7916
Monthly payments	$992.86
Total payment paid	992.86*360
Total payment paid	$357,429.60
Interest on loan	357429.60-165600
Interest on loan	$191,829.60
Monthly payment with interest rate of 3.5%
r = 3.5%/12 = 0.2917%
n = 360 (30*12)
Monthly payments	165600/((1-(1.002917^-360)/0.002917)
Monthly payments	165600/222.694985
Monthly payments	$743.62
Total payment paid	743.62*360
Total payment paid	$267,702.48
Interest on loan	267702.48-165600
Interest on loan	$102,102.48
Extra interest paid on 6% mortgage	191829.60-102102.48
Extra interest paid on 6% mortgage	$89,727
Thus, $89,727 more interest is paid under 6% mortgage as compared to 3.5%