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LaTonya and Tracey both have a $97,000 30-year mortgage. The interest rate on LaTonya's mortgage is 8.5%. The interest rate on Tracey's mortgage is 6.9%. If both ladies take the entire 30 years to pay their mortgage, Tracey will end up paying more money.
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False.
With the same principal and term, the lower interest rate gives the lower monthly payment and lower total paid.
Using the mortgage payment formula M = P·(r/(1−(1+r)^(−n))) with n = 360 months:
- LaTonya (8.5% → r = 0.085/12 ≈ 0.0070833): M ≈ $745.34, total ≈ $745.34×360 ≈ $268,323.
- Tracey (6.9% → r = 0.069/12 = 0.00575): M ≈ $638.54, total ≈ $638.54×360 ≈ $229,874.
Tracey pays substantially less, so the statement is false.
With the same principal and term, the lower interest rate gives the lower monthly payment and lower total paid.
Using the mortgage payment formula M = P·(r/(1−(1+r)^(−n))) with n = 360 months:
- LaTonya (8.5% → r = 0.085/12 ≈ 0.0070833): M ≈ $745.34, total ≈ $745.34×360 ≈ $268,323.
- Tracey (6.9% → r = 0.069/12 = 0.00575): M ≈ $638.54, total ≈ $638.54×360 ≈ $229,874.
Tracey pays substantially less, so the statement is false.
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