Assume you are going to buy a house that is for sale at $500,000. You have saved $100,000 for downpayment so the mortage will be for $400,000.
The bank quotes you two options. A 30 year, monthly payments loan at 6% or a 15 year loan at 5%.
Your friends tell you that if you go 15 years the total interest paid will be hundreds of thousands less.
You don't believe them so decide to do the math.
Easy way. Not surprisingly, there is an app for that. Excel has a formula.
CUMIPMT(rate, nper, pv, start_period, end_period, type)
For the 30 year loan it would be
CUMIPMT(6%/12 , 12*30 , $400,000, 1, 360, 0)
Hard way. Do an amortization table and add all interest payments.
Curious about the answer?
Check the spreadsheet, you can make a copy and change it to your needs.
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