Question

I’m stuck on a math problem. It’s asking..

You plan to purchase a house for $425,000 and you will make a 30% down payment. You are evaluating two mortgages a 30-year fixed mortgage at 2.77% and a 15 year fixed mortgage at 2.15%. 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 that 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 interest be? How much less will this be than the interest on on the other mortgage?

Answer 1

A. 30 years at 2.77%; $1217.67; $717.38 lower

B. 30 years at 2.77%; $140861.72; $90,051.68 difference

Explanation:

A suitable spreadsheet, calculator, or financial app can help you answer these questions. In the attachments, we show the result of using a TI-84 work-alike calculator's financial app.d

A.

The lowest monthly payment generally results from the longest-term mortgage, even when the interest rate is slightly higher. Here, the lowest payment is $1217.67 on the 30-year loan. It is $717.38 lower than the payment on the 15-year loan.

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B.

The longer-term loan will generally require payment of more interest. Here, that is made worse by the higher rate on the longer loan. The interest is the sum of payments less the initial principal. The highest amount of interest is $140,861.72 on the 30-year loan. That is $90,051.68 more than for the 15-year loan. (The wording of the question seems to be confused.) The least interest amount is $50,810.04 on the 15-year loan.