Suppose you wish to borrow 245000 for a home with an APR of

Suppose you wish to borrow $245,000 for a home with an APR of 7.25%. You know that a 15-year home loan is beyond your reach due to your budget restrictions, but you are weighing the pros and cons of a 30-year versus a 20-year mortgage. You would like to identify how much the payments would be and especially the difference in total interest charged. Round each of your answers to the nearest dollar and do not include commas.

What would the payment be for the 30-year loan?

$__________

What would the total interest be for the 30 year loan?

$__________

What would the payment be for the 20-year loan?
$__________

What would the total interest be for the 20 year loan?

$__________

What is the difference in total interest between the 30-year loan and the 20-year loan?
$ __________

Solution

Formula : PMT = rate*PV/[ 1- (1+r)^-n]

r = APR/12 = 7.25/12 = 0.6042%

PV = $ 245,000

n = 30*!2 = 360

Plug the values in the formula : we get PMT = $ 744.27

Total repayment = $744.27*360 = $267937.20

Total Interest = $ 245000 - $267937.20 = $ 22937.20

for 20 year plan:

PMT = $ 1084.01

Total repayment = $1084.01*240 = $260162.40

Total Interest = $ 245000 - $260162.40 = $ 15162.40

Difference between the two interests = $ 7774.8