To compare the two mortgage options, we need to calculate the total interest paid over the life of each loan.
For the 20-year mortgage at 6.75%, the total interest can be calculated as:
Total interest = Principal x Rate x Time
Total interest = $200,000 x 0.0675 x 20
Total interest = $270,000
So the total amount paid back over the 20-year mortgage is $470,000 ($200,000 principal + $270,000 interest).
For the 30-year mortgage at 5.25%, the total interest can be calculated as:
Total interest = Principal x Rate x Time
Total interest = $200,000 x 0.0525 x 30
Total interest = $315,000
So the total amount paid back over the 30-year mortgage is $515,000 ($200,000 principal + $315,000 interest).
Therefore, even though the interest rate on the 20-year mortgage is higher, it results in lower total interest paid because the loan term is shorter. So the Fongs should choose the 20-year mortgage from the local bank to pay less interest overall.