Comparing the expense of different loans allows us to consider only the interest portion of the monthly payments. The principal portion of the monthly payment is not considered an expense. Therefore, only the interest portion of the monthly payments are considered in these examples. A financial calculator or spreadsheet program can provide the interest portion of the monthly payments. Here are the loan comparisons:

 

Loan: 30-year, fixed, $100,000, 8.0%, monthly P&I payment = $733.82
Month		1	2	. . .	23	24
8.0%	Interest	666.67	666.22		656.11	655.59
	Points	0
	Other Fees	0
	Cumulative Total	666.67	1332.89		15,214.70	15,870.29

Loan: 30-year, fixed, $100,000, 7.5%, monthly P&I payment = $699.28
Month		1	2	. . .	23	24
7.5%	Interest	625.00	624.54		614.10	613.57
	Points	0
	Other Fees	1,000
	Cumulative Total	1,625.00	2,249.54		15,252.35	15,865.91

 

Loan: 30-year, fixed, $100,000, 7.0%, monthly P&I payment = $655.37
Month		1	2	. . .	23	24
7.0%	Interest	583.33	582.86		572.14	571.60
	Points	1,000
	Other Fees	1,000
	Cumulative Total	2,583.33	3,166.19		15,290.61	15,862.21

 

The cumulative total for each loan represents the total expense related to the loan at the end of a given month. Initially, the expense of the 8 percent loan is much lower compared to the others because the 8 percent loan is free of out-of-pocket closing costs. The 7.5 percent loan is a zero point, $1,000 closing costs loan. The 7 percent loan example requires the borrower to pay points and fees. Initially, the 7 percent loan is the most expensive. At the end of month twenty-three, the 8 percent loan is still the least expensive. At the end of month twenty-four, the 7 percent loan is the least expensive. If we were to carry out these examples, the 7 percent loan would continue to be the least expensive. This comparison suggests that you should take the 7 percent loan. You'll be in your home for three years, and beginning in the second year you start saving money with the 7 percent loan.