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The price of a small cabin is $100,000. The bank requires a 5% down payment. The buyer is offered two mortgage options: 20-year fixed at 8% or 30-year fixed at 8%. Calculate the amount of interest paid for each option. How much does the buyer save in interest with the 20-year option?

Respuesta :

varshamittal029

The buyer saves $76000 in interest with the 20-year option.

What is simple interest formula ?

If P be the principal amount, t be the time

And R be the rate of interest.

Then, Simple Interest(S.I.) = (P×R×t)/100

What are the required results ?

The down payment is of 5%

The price of the small cabin is $100000

Hence the principal is 95% of the price.

P = $(100000×0.95) = $95000

For 20 years option,

P = $95000 , R = 8%, t = 20 yrs

S.I. = (95000×8×20)/100 = 152000

So, the amount of interest paid for the 20 years is $152000

For 30 years option,

P =$95000, R=8%, t = 30 yrs

S.I. = (95000×8×30)/100 = 228000

So, the amount of interest paid for the 30 years is $228000

∴ The buyer saves $(228000-152000) = $76000 in interest with the 20 years option.

Learn more about simple interest here :

https://brainly.com/question/1173061

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