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 700 or higher. How much more interest would you pay on a $199,000 home if you put 25% down and financed the remaining with a 30-year mortgage at 5% interest compared to a 30-year mortgage at 3.5% interest? (Use 360 days a year.Do not round intermediate calculations. Round your answer to the nearest cent.)

Answer 1

Calculation of extra interest on mortgage@5% than mortgage3.5%

Total Amount payable for home=$199,000

Down payment                        25%= $49,750

Balance amount financed =          $149,750

Monthly interest payable @5% interest =P*r(1+r)ⁿ/{(1+r)ⁿ-1

P=Total loan =$149,750

r=monthly interest=5%/12=0.00416667

                n=12*30=360installments

Monthly payment @5% int. =$149,750*0.00416667(1+0.00416667)³⁶⁰/{(1+0.00416667)³⁶⁰-1}

                                                      =$149,750*0.0041667*4.467744314/(4.467744314-1)

                                                         =$149,750*0.018615601/3.467744314

                                                          =$2788.3784953/3.467744314=$801.2062723

Total interest=$801.2062723*360-$149,750(total installment-financed amount)

                        =$   288,434.258-$149,750=$139,184.258

Monthly interest payable @3.5% interest =P*r(1+r)ⁿ/{(1+r)ⁿ-1

P=Total loan =$149,750

r=monthly interest=3.5%/12=0.00291666667

                n=12*30=360installments

Monthly payment @3.5%   =$149,750*0.002916667(1+0.002916667)³⁶⁰/{(1+0.002916667)³⁶⁰-1}

                                                      =$149,750*0.00291667*2.853287165/(2.853287165-1)

                                                  =$149,750*0.008322088/1.853287165

                                                          =$1242.0715691/1.853287165=$670.1991966

Total interest=$670.1991966*360-$149,750(total installment-financed amount)

                        =$241,271.7108-$149,750=$92,021.71

More interest payable at 5% interest rate=$139,184.258-$92,021.71

                                =$47,162.55