Questions: Option 2: a 15-year loan at an APR of 6.5%. Compare the two options. Which appears to be the better option? A. Option 1 is the better option, but only if the borrower plans to stay in the same home for the entire term of the loan. B. Option 1 will always be the better option. C. Option 2 is the better option, but only if the borrower can afford the higher monthly payments over the entire term of the loan. D. Option 2 will always be the better option

Solution Steps

To compare the two loan options, we need to calculate the monthly payments for each loan and the total amount paid over the life of the loan. This involves using the formula for monthly payments on an amortizing loan, which is based on the principal amount, the annual interest rate, and the number of payments. Once we have the monthly payments, we can multiply by the number of payments to find the total cost of each loan. Comparing these totals will help determine which option is better under different circumstances.

For Option 1 (30-year loan at 5.0% APR): \[ \text{Monthly Payment}_{\text{Option 1}} = 536.82 \]

For Option 2 (15-year loan at 6.5% APR): \[ \text{Monthly Payment}_{\text{Option 2}} = 871.11 \]

The total payment for Option 1 over 30 years is calculated as: \[ \text{Total Payment}_{\text{Option 1}} = 536.82 \times 30 \times 12 = 193255.78 \]

The total payment for Option 2 over 15 years is calculated as: \[ \text{Total Payment}_{\text{Option 2}} = 871.11 \times 15 \times 12 = 156799.33 \]

• Total Payment for Option 1: \( 193255.78 \)
• Total Payment for Option 2: \( 156799.33 \)

Final Answer