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The price of a small cabin is $45,000. The bank requires a 5% down payment. The buyer is offered two mortgage options: 20-year fixed at 8% or 30 year fixed at 8%. Calculate the amount of interest paid for each option. And how much does the buyer save in interest with the 20-year option?

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Pauline Sheehan eNotes educator | Certified Educator

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Care not to combine too many questions into one as the eNotes rules do not allow it. I will answer accordingly and you will be able to calculate any remaining answers from the information given below:

First we will have to calculate the monthly repayment. You have not said that interest is compounded monthly but I have assumed as it is usual for a mortgage bond.

```P_(v) = (x[1-(1+i)^(-n)])/ i` 

We use the present value formula because we know how much money he has NOW. Take 5% of $45 000= $2250

Thus we must borrow $42...

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