Question

Homeowner could take out 15-year mortgage at 5.5% annual rate on a $195,000 mortgage amount, or she could finance purchase with 30-year mortgage at 6.1% annual rate. How much total interest over entire mortgage period could she save by financing her home with 15 year mortgage ( to nearest dollar

Answer 1

$138,6126

Step-by-step explanation:

The general formula to solve this is FVAn = PMT(PVIFAi,n)

Where FVAn is Face value (annual rate)

PMT is payment

PVIFA is Present Value Interest Factor of an Annuity =

i is the interest and n is the number of time in months

Calculate pmt for 15years (convert to months =180 months)

195,000 = Pmt × PVIFA (0.055/12, 180 months)

Pmt of $1,593.31 × 180 = $286,795.8

Calculate pmt for 30years (convert to months =360 months)

195,000 = Pmt × PVIFA (0.061/12, 360 months);

Pmt of $1,181.69 × 360 = 425,408.4;

Now subtract pmt at 15years from pmt at 30years

$425,408.4 – $286,795.8 = $138,6126.