The price of a small cabin is 50000 The bank requires a 5 do

The price of a small cabin is ?$50,000. The bank requires a? 5% down payment. The buyer is offered two mortgage? options: 20-year fixed at 7.57.5?% or? 30-year fixed at 7.57.5?%.

Calculate the amount of interest paid for each option. How much does the buyer save in interest with the? 20-year option?

Find the monthly payment for the? 20-year option.

Find the monthly payment for the 30-year option.

Solution

20 year Option 30 Year Option Purchased price of Cabin $50,000.00 $50,000.00 Less: 5% Down Payment -$2,500.00 -$2,500.00 Amount Borrowed = principal $47,500.00 $47,500.00 Monthly Rate = 7.575%/12 0.63% 0.63% Period = 20 x 12 months; 30 x 12 months 240 360 Monthly Payment = PMT(rate,period,-Principal) $384.84 $334.57 Total payment = PMT x Period $92,361.13 $120,445.10 Less: Amount Borrowed $47,500.00 $47,500.00 Interest Paid $44,861.13 $72,945.10 Interest Saved with the? 20-year option ($72,945.10 - $44,861.13) $28,083.96