Question

You plan to purchase a $330,000 house using either a 30-year mortgage obtained from your local savings bank with a rate of 8.00 percent, or a 20-year mortgage with a rate of 7.00 percent. You will make a down payment of 20 percent of the purchase price. a. Calculate the amount of interest and, separately, principal paid on each mortgage. What is the difference in interest paid

Answer 1

30 year mortgage

down payment = $330,000 x 20% = $66,000

debt = $330,000 - $66,000 = $264,000

monthly payment = $264,000 / 136.2834 (PV annuity factor, 360 periods, 0.667%) = $1,937.14

total payments = $1,937.14 x 360 = $697,370.40

total interest paid = $697,370.40 - $264,000 = $433,370.40

20 year mortgage

down payment = $330,000 x 20% = $66,000

debt = $330,000 - $66,000 = $264,000

monthly payment = $264,000 / 128.9825 (PV annuity factor, 240 periods, 0.583%) = $2,046.79

total payments = $2,046.79 x 240 = $491,229.60

total interest paid = $491,229.60 - $264,000 = $227,229.60

the 20 year mortgage charges $433,370.40 - $227,229.60 = $206,140.80 less interest