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ASSIGNMENT INSTRUCTIONS:
It is likely that you won’t like the prospect of paying more money each month, but if you do take out a 15-year mortgage, you will make far fewer payments and will pay a lot less in interest. How much more total interest will you pay over the life of the loan if you take out a 30-year mortgage instead of a 15-year mortgage?
HOW TO WORK ON THIS ASSIGNMENT (EXAMPLE ESSAY / DRAFT)
When it comes to taking out a mortgage, one of the most significant decisions you’ll need to make is the term length. A 15-year mortgage may seem like an unaffordable commitment due to higher monthly payments, but it could save you a considerable amount of money in the long run.
It’s true that opting for a 30-year mortgage instead of a 15-year mortgage will result in lower monthly payments. However, the total amount of interest paid over the life of the loan will be substantially higher. The longer the loan term, the more interest you’ll pay, making a 30-year mortgage more expensive in the long run.
To understand how much more interest you’ll pay with a 30-year mortgage, let’s consider a hypothetical scenario. Suppose you take out a $200,000 mortgage with a fixed interest rate of 4% for either 15 or 30 years. For a 15-year mortgage, your monthly payments will be approximately $1,479, and you’ll pay a total of $66,288 in interest over the life of the loan. In contrast, a 30-year mortgage will result in a lower monthly payment of approximately $955, but you’ll pay $143,739 in interest over the life of the loan.
Therefore, in this scenario, you would pay $77,451 more in interest over the life of the loan if you chose a 30-year mortgage instead of a 15-year mortgage. This is a substantial amount of money that could be saved by choosing a shorter loan term.
In conclusion, while the prospect of higher monthly payments may seem unappealing, opting for a 15-year mortgage can save you a significant amount of money in the long run by reducing the amount of interest you’ll pay over the life of the loan.
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