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we are borrowing $ 250,000 for a mortgage and will pay $ 3000 a month. which of these loans will we pay the least amount of interest on and how much interest would we pay on each?

loan A 30yrs @ 6%
loan B 10yrs @ 6%
Thanks nipsy, that’s about what I was thinking.
the rate from the credit union for 10 yrs is auctualy 6.125 for 10 yrs , that’s higher than the 30yrs rate but get this they want 7.75 for a 40yrs term which means the payments are higher than for a 25yr loan and 15yrs longer.
I’m gonna keep checking around!

2 Thoughts on which loan would I pay the least amount of intrest on ?
  1. Reply
    Nipsy J
    February 2, 2014 at 9:06 pm

    if you are paying $ 3000/month on a 6% amortization schedule, you are going to pay the loan off in less than 10 years.

    so, it’s not going to matter if you take Loan A or Loan B, your interest payments are going to be the same. you are paying interest of 1/2% per month on the outstanding principle balance.

    as the required monthly payment on Loan B is going to be $ 2775, you might opt for Loan A (assuming all other terms, fees are the same), which only has $ 1498 monthly payment as it is easier to handle if you get into some unforeseen financial difficulty and can’t make the $ 3000 monthly payment.

    generally, if you opt for a loan with a shorter payback term, you should expect to get a lower rate. if you were quoted 6% for 30 years on this loan, I would expect 5.5% or lower for 10 years.


    Additional details:

    Nik’s answer below is incorrect. I would love to see the details of his analysis to arrive at his answer. Maybe he overlooked the $ 3000 per month payments you plan to make.

  2. Reply
    February 2, 2014 at 10:02 pm

    Loan B would be cheaper however you should go with loan and make 2 extra payments a year. That will knock at least 15 years off your loan.

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