# 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...

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?

Angie Waters | Certified Educator

calendarEducator since 2012

starTop subjects are Literature, Math, and Social Sciences

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...

(The entire section contains 221 words.)