Question: You are planning on buying your first home and need
You are planning on buying your first home and need to borrow $250,000 from the bank. The manager offers you two mortgages: the long option will take 25 years to be paid off, and your annual payments will be $17,738. The short option will take only 10 years to be paid off, and your annual payment will be $35,200. The manager offers you the following advice: if you take the long option, you will pay $193,450 in interest ($17,738 × 25 – $250,000), while if you take the short option, you will pay only $102,000 in interest ($35,200 × 10 – $250,000)—a savings of over $91,000. Do you agree or disagree with the manager’s advice? Briefly explain your reasoning. Hint: consider opportunity cost.
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