Question

Charlie needs a $275,000 mortgage and he'd like to pay it off in 30 years. He is considering two banks. Bank A: 3.5% with monthly payments of $1234.87 Bank B: 4% with monthly payments of $1312.89 Charlie doesn't think a 0.5% difference is that much. What is the difference between these two bank loans with total interest paid over the life of the loan?

Answer 1

Answer:

Difference in interest= $41,250

Step-by-step explanation:

To calculate the interest paid on each bank loan we use the following formula

Interest = Principal * Rate * Time

For Bank A

Interest = 275,000 * 0.035 * 30

Interest = $288,750

For Bank B

Interest = 275,000 * 0.04 * 30

Interest = $330,000

Therefore

Difference in interest= 330,000 - 288,750

Difference in interest= $41,250

Therefore if the mortgage is taken from Bank B he will pay an extra $41,250 on the loan.

The 0.5% difference in rates has a large impact over the 30 year term loan