Suppose you were presented with the option to finance a home for 15 years or 20...

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Suppose you were presented with the option to finance a home for 15 years or 20...

Suppose you were presented with the option to finance a home for 15 years or 20 years. Would you expect to have the same interest rate on either mortgage or would one of them have a lower interest rate?

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Answer 1

Answer #1

Interest rate will be same in both the cases.

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Loan amount is the present value of all the payment (EMIs) made by the loan taker.

In this case there are two loan options with different tenure, present value of both the loan must be equal.

In both the cases present value of the payments will be equal, in second case in which loan tenure is 20 years, EMI will be lower.

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Answer 2

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