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Mortgage and interest

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The price of a small cabin is $50,000. The bank requires a 5% down payment. The buyer is offered two mortgage options; 20- year fixed at 7% or 30- year at 7%. Calculate the amount of interest paid for each option. How much does the buyer save in interest with the 20-year option?

A. find the monthly payment for the 20 year option and round to the nearest dollar.

B. Find the monthly payment for the 30 year option and round to the nearest dollar
C. Calculate the total cost of interest for both mortgage options. How much does the buyer save in interest with the 20 year option ?

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Solution Summary

This provides an example of calculating monthly payment for a mortgage.

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The price of the cabin is $50,000, after 5% down payment, the mortgage is $50,000 * (1 - 5%) = $47,500.

A. The first option is 20-year fixed interest at 7%. Suppose the monthly payment is x, Then we have the observation.
At the end of the first month, the balance is 47500*(1 + 0.07/12) - x.
At the end ...

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