You want to borrow money to buy a vaction home You are looki

You want to borrow money to buy a vaction home. You are looking at 15 year loans. Loan A has an interest rate of 6%. Loan B has an interest rate of 5%. All else equal, which of the following are true? a. You should choose Loan A because you will pay more total interest. b. You should choose Loan A because it will pay less total interest. c. You should choose Loan B because it will pay more total interest. d. You should choose Loan B because it will pay less total interest.

Solution

Loan A has an interest rate of 6 % and that of loan B is 5 %. It can be observed that loan B has less interest rate. If we borrowed as per loan B, we have to pay less yearly interest and so less total interest as other terms are equal for both the loan options.

Loan B should be opted in order to save some amount on loan interest.

Hence option “d. You should choose Loan B because it will pay less total interest” is correct answer.