Consumption and Real Estate
What are 2 disadvantages of option A mortgage compare with option B mortgage?
Question : What are 2 disadvantages of option A mortgage compare with option B mortgage?
Option A = pay 20% of purchase price as deposit and borrow the rest at fixed rate of 5.4% APR for 20 years
option B= pay 25% deposit and borrow the rest at a fixed rate of 4.8% APR over 25 years
the only disadvantage i can come up with is it will be higher monthly payments,
disadvantage of A of B not the other way round
there has to be 2 otherwise it wouldnt ask!!!! aarrgghhh
compare mortgages
Best answer:
Answer by Judy
Yup, the only disadvantage I can see is
-Higher principal payment
-Higher interest payment
Which combined make a higher monthly payment.
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Using the basis for this comparison, I am using $ 100,000 as the home price
Option A, borrowing $ 80k, @ 5.4% for 20 y, monthly payment $ 543.12
TTL payments $ 130,347.34
TTL interest $ 50,347.34
Option B Borrowing $ 75k, @ 4.8% for 25 y, monthly payments are $ 427.70
ttl payments are $ 128,312.49
TTL interest is 53,312.49
With option A yes you pay higher monthly, but THREE good things are less down payment, you pay less in interest ($ 2965.15), and you are out of the mortgage 5 years earlier.
This will be the same type of savings for any amount of mortgage, just the numbers will change proportionally. Do you also know you can put more to the principle at any time and save a great deal more of time and interest?