A person’s credit score is important in determining the interest rate they have to pay on a home mortgage. According to Consumer Credit Counseling Service, a homeowner with a $100,000 mortgage and a 580 credit score will pay $90,325 more in interest charges over the life of a 30-year loan than a homeowner with the same mortgage and a credit score of 720. How much higher would the interest rate per year have to be in order to account for this much difference in interest charges, if the $100,000 loan is repaid in a single lump sum payment at the end of 30 years?
What will be an ideal response?
100,000 = 190,325(P/F,i,30)
(P/F,i,30) = 0.52542
Find i by interpolation between 2% and 3%, or by solving P/F equation, or by Excel
By RATE function, i = 2.17%
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