Question

Mortgage lenders base the mortgage interest rate they offer you on your credit rating. This makes it financially critical to maintain a credit score of 740 or higher. How much more interest would you pay on a $186,000 home if you put 25% down and financed the remaining with a 30-year mortgage at 5% interest compared to a 30-year mortgage at 3.5% interest? (Do not round intermediate calculations. Round your answer to the nearest cent.) * Answer is complete but not entirely correct. Excess interest $ 41,144.80

Answer 1

Loan amount = Present value of future monthly payments = monthly payment * [1-(1+i)^-n]/i

i = interest rate per period

n = number of periods

=>

at 5% interest

monthly payment * [1 - (1+0.05/12)^-360]/(0.05/12) = 186000 * (1-0.25)

=>

monthly payment = 748.87

total interest = 748.87*360 -  186000*(1-0.25) = 130093.2

at 3.5% interest

monthly payment * [1 - (1+0.035/12)^-360]/(0.035/12) = 186000 * (1-0.25)

=>

monthly payment = 626.42

total interest = 626.42*360 -  186000*(1-0.25) = 86011.2

excess interest = 130093.2- 86011.2

= 44082