Question

Chris and Becky are comparing mortgages. The mortgage is for $183,500. If they choose 30 years at 5%, their monthly payment will be $985.07. If they choose 20 years at 4.5%, their monthly payment will be $1160.91. How much will be the total payback amount for each loan?

Answer 1

Total payback for Loan type 1 = $354,625.20

Total payback for Loan type 2 = $278,618.40

Explanation

Total payback of a loan consists of the summation of the amount of mortgage to be paid and total interest to be paid after the given number of years.

Total payback of a loan can also be calculated by multiplying your monthly payment of the loan by the total number of months given for payment.

a. For Loan type 1

In the question we have been given or monthly payment = $985.07

The formula for Total payback for Loan type 1 = Monthly payment × number of months

Numbers of years for payment of loan = 30 years

1 years = 12 months

Hence,

Number of months = 30 years × 12 months

Number of months = 360 months

Total payback of loan = $985.07 × 360 months

= $354,625.20

b. For Loan type 2

In the question we have been given or monthly payment = $1160.91

The formula for Total payback for Loan type 1 = Monthly payment × number of months

Numbers of years for payment of loan = 30 years

1 years = 12 months

Hence,

Number of months = 20 years × 12 months

Number of months = 240 months

Total payback of loan = $1160.91 × 240 months

= $278,618.4

Answer 2

For 30 years at 5% = $354,625.2

For 20 years at 4.5% = $278,618.4

Explanation:

The total payback for each payment is given by the monthly payment multiplied by the total number of months for the payment period (years).

1) For 30 years at 5%

Total number of months in 30 years = 30 x 12 = 360 months

Payback = $985.07 x 360 = $354,625.2

2) For 20 years at 4.5%

Total number of months in 20 years = 20 x 12 = 240 months

Payback = $1160.91 x 240 = $278,618.4