15. If you can borrow $180,000 to buy a house using a 30-year mortgage at a 4.02
ID: 2791761 • Letter: 1
Question
15. If you can borrow $180,000 to buy a house using a 30-year mortgage at a 4.02 percent annual rate, what will be your monthly payment of principal and interest? How much will you pay in interest over 30 years?
Mortgage loan
$180,000
Annual interest rate on loan
4.02%
Monthly interest rate on loan
0.335%
Mortgage term in years
30
Mortgage term in months
360
Payment of principal and interest
Total of payments
Interest paid over 30 years
How could the financing be changed so that you paid much less interest and made far fewer payments?
15. If you can borrow $180,000 to buy a house using a 30-year mortgage at a 4.02 percent annual rate, what will be your monthly payment of principal and interest? How much will you pay in interest over 30 years?
Mortgage loan
$180,000
Annual interest rate on loan
4.02%
Monthly interest rate on loan
0.335%
Mortgage term in years
30
Mortgage term in months
360
Payment of principal and interest
Total of payments
Interest paid over 30 years
How could the financing be changed so that you paid much less interest and made far fewer payments?
Explanation / Answer
Monthly payment ( including the interest) = Prinicple / [ PVA] = 180,000 / 208.956267 = 861.42
PVA = present value of annuity with r = 0.00335 and n = 360 periods
= [ 1 - ( 1.00335)-360 ] / 0.00335 = 208.956267
Question - 2
Total payment over 360 periods = 861.42 * 360 = 310113
Question - 3
Total Interest = 310,113 - 180,000 = 130,113
Question - 4
If interest is to be paid in lower amount, then period of financing should be reduced to below 30 years. Number of payments will be reduced and total interest shall also be reduced.
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