The price of a home is $240,000. The bank requires 15% down payment. The buyer is offered two mortgage options: 15 year fixed at 6.5% or 30 year fixed at 6.5%. Calculate the amount of interest paid of each option? How much interest is saved with the 15 year option?
- print Print
- list Cite
Expert Answers
Pauline Sheehan
| Certified Educator
calendarEducator since 2012
write2,388 answers
starTop subjects are Literature, Math, and Social Sciences
An amount of $36 000 (`15/100 times 240 000 = 36 000` )is requried as the down payment. We must borrow $204 000. As we know the amount NOW we must use the present value formula:
`P_(v) = (x[1-(1+i)^(-n)])/i`
We know that `P_(v) = 204 000`
x is unknown
`i = 6.5% = 6.5/100 = 0.065`
which we divide by 12 (compounded monthly as not specified in the question but it is usual for mortgage bonds) `i=0.065/12`
`n= 15` years or `n=30` years which are x12 (due to compounding monthly.
now substitute...
(The entire section contains 182 words.)
Unlock This Answer Now
Start your 48-hour free trial to unlock this answer and thousands more. Enjoy eNotes ad-free and cancel anytime.
Related Questions
- The price of a small cabin is $45,000. The bank requires a 5% down payment. The buyer is offered...
- 1 Educator Answer
- Calculate the amount of interest paid for each option and how much does the buyer save with the...
- 1 Educator Answer
- Neeta takes out a 25-year mortgage of $40 000 to buy her house. Compound interest is charged on...
- 1 Educator Answer
- Ken and Bob took out $125000 mortgage at 8.75% three years ago. The amortization period was 25...
- 1 Educator Answer
- If a loan for $10,000 is paid off in 5 years and the rate of interest is n% per annum componded...
- 1 Educator Answer