Question

Aswer the following and submit by due date.You plan to purchase a house for $350,000 and you will make a 20% down payment. You are evaluating two mortgages at a 30-year fixed mortgage at 3.16% and 15 year fixed mortgage at 2.75%. Your goal is to have a monthly payment that fits within your budget. A. Which mortgage will give you the lowest monthly payment? What will the payment be? How much less will this be than the other monthly mortgage payment?B. Assuming you take the full term of the mortgage, which mortgage will result in you paying the most interest. What will that intrest be?

Answer 1

Our plan is to buy a house of $350,000 and we will make a 20% down payment.

So the mortgage of the house will be of:

`350000-0.2\cdot350000=280000`

A)

1) The cost of the first mortgage at a 30-year fixed mortgage at 3.16% is:

`280000\cdot(1+0.0316)^(30)\cong712029.58`

And the total of monthly payments is: 12*30 = 360

If we divide the total mortgage by the total number of payments we obtain that each payment is of:

`(712029.58)/(360)\cong1977.86`

2) The cost of the second mortgage at a 15-year fixed mortgage at 2.75% is:

`280000\cdot(1+0.0275)^(15)=420615.71`

And the total of monthly payments is: 12*15 = 180

If we divide the total mortgage by the total number of payments we obtain that each payment is of:

`(420615.71)/(180)\cong2336.75`

A1) The first mortgage will give us the lowest monthly payment.

A2) The payment will be of $1977.86 per month.

A3) The paynment is: $2336.75 - $1977.86 = $358.89 less than the second mortgage.

B)

1) The interest of the first mortgage is:

`712029.58-280000=432029.58`

2) The interest of the second mortgage is:

`420615.71-280000=140615.71`

B) The first mortgage will result us in paying the most interest and the interest will be of $432029.58