Question

1. On a $375,000 home loan, you can either finance at 5.6% for 20 or 30 years. Find the monthly payment and the total paid over each loan. Which loan do you pay more interest on. How much more interest is paid? Are you shocked at the difference?

Answer 1

Answer:

(20 years) Cuota = 2,600.80

                 Interest  249,192

(30 years)  Cuota 2,152.80

                  Interest 400,008

Diference: 400,008 - 249,192 = 150,816

30 year loan paid 150,816 more interest expense

Explanation:

(20 years)

$C \times \frac{1-(1+r)^{-time} }{rate} = PV$

$PV \div \frac{1-(1+r)^{-time} }{rate} = C$

$375,000 \div \frac{1-(1+0.056/12)^{-240} }{0.056/12} = C$

monthly interest .056/12

time 20 years x 12 month a year = 240

Cuota = 2,600.80

Interest

Cuota x payment - principal = interest

240 x 2600.8 - 375,000 = 249,192

(30 years)

$375,000 \div \frac{1-(1+0.056/12)^{-360} }{0.056/12} = C$

monthly interest .056/12

time 30 years x 12 month a year = 360

Cuota 2,152.80

Interest

Cuota x payment - principal = interest

360 x 2152.8 - 375,000 = 400,008