What is the total interest paid over the life of this loan

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Reference no: EM131487413

Assume the home price was $250,000; the down payment is $25,000; the annual interest rate is 4.0 percent; the loan is paid back over 30 years and payments are monthly.

a) What is the total interest paid over the life of this loan? ________________________

Now assume you decide to pay back the loan more quickly. So, the total loan amount is $225,000, the annual interest rate is 3.50 percent, the loan is paid back over 20 years, and payments are monthly.

b) What is the total interest paid over the life of this loan? ________________________

c) Between a) and b), which one has a lower total interest paid? Why?

A personal finance tip for future homebuyers is to find a way to make extra principal payments each month. If you are able to do that, then you will pay off your home loan sooner, and will pay less interest over the life of the loan. You will need to add a decision variable to your loan amortization table to account for the “extra” principal payment. Note: Your “Payment Amount” won’t change because the “extra” principal payment is applied after you pay the bank the “Payment Amount.”

d) If you were to pay an extra $50 per month towards principal, about how long will it take you to pay off your loan (# of payments)? About how much interest would save? Note: Round your answers to the nearest whole #

Reference no: EM131487413

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