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In terms of paying less in interest, which is more economical for a $150,000 mortgage: a 30-year fixed-rate at 8% or a 20-year fixed-rate at 7.5%? How much is saved in interest?

User Engilyin
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1 Answer

6 votes

Answer:

  • 20-year fixed-rate at 7.5%
  • $106,219.32

Explanation:

The shorter the term, the lower the amount of interest.

The lower the interest rate, the lower the amount of interest.

The loan that has both a shorter term and a lower interest rate will cost less in interest.

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The total of payments for the 30-year loan is 396,232.87.

The total of payments for the 20-year loan is 290,013.55.

The amount saved by taking the shorter loan is the difference of these amounts: $106,219.32.

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You can use an amortization formula, spreadsheet, or a financial calculator to compute the payments for each loan. The total repayment amount is the product of the monthly payment and the number of them, 360 for the 30-year loan; 240 for the 20-year loan.

User Maykeye
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