Question

Charlie needs a $275,000 mortgage and he'd like to pay it off in 30 years. He is considering two banks. Bank A: 3.5% with monthly payments of $1234.87 Bank B: 4% with monthly payments of $1312.89 Charlie doesn't think a 0.5% difference is that much. What is the difference between these two bank loans with total interest paid over the life of the loan?

Answer 1

The difference between the two bank loans is the total interest paid over the life of the loan. Bank A has a total interest paid of $169,553.20, while Bank B has a total interest paid of $198,640.40. Therefore, the difference in total interest paid between the two bank loans is $29,087.20.

Step-by-step explanation:

The difference between the two bank loans is the total interest paid over the life of the loan.

• Bank A offers a 3.5% interest rate, with monthly payments of $1234.87.
• Bank B offers a 4% interest rate, with monthly payments of $1312.89.

To calculate the total interest paid, we can subtract the principal loan amount from the total amount paid.

For Bank A:
Total interest paid = Total amount paid - Principal loan amount
Total interest paid = ($1234.87 * 360) - $275,000
Total interest paid = $444,553.20 - $275,000
Total interest paid = $169,553.20

For Bank B:
Total interest paid = Total amount paid - Principal loan amount
Total interest paid = ($1312.89 * 360) - $275,000
Total interest paid = $473,640.40 - $275,000
Total interest paid = $198,640.40

The difference in total interest paid between the two bank loans is $198,640.40 - $169,553.20 = $29,087.20.