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You are planning to purchase a house that will require a mortgage of $300,000.

You find 2 mortgage offers both at the same rate of 2.5%. One is a 30-year mortgage and the other is a 20-year mortgage.

You know, without any computation, that the 30-year mortgage will have lower monthly payments than the 20-year mortgage since the rates are the same. A friend advised that before taking the 30-year mortgage offer, you do some mathematical calculations to see if your budget can handle the extra amount of monthly payment for the 20-year mortgage.

1. How much more money would you have to budget per month to make the monthly payments on the 20-year mortgage instead of the 30-year mortgage?

2. You ask your friend what advantage there is to be paying more per month on the 20-year mortgage. Your friend replies that it is all about total interest. What is the difference between the total interest you would pay on each mortgage? Assume that you take the full term for each of the mortgages.