Question

You are applying for an 80/20 mortgage to buy a house costing $145,000. The first (80%) mortgage has an interest rate of 4.75%, and the second (20%) mortgage has an interest rate of 7.525%. Both the first mortgage and the second mortgage are 30-year fixed-rate mortgages. What will the total amount of the mortgage be?

Answer 1

$291,016.80

A is correct.

Explanation:

You are applying for an 80/20 mortgage to buy a house costing $145,000.

Loan Formula:

`EMI=(P\cdot r)/(1-(1+r)^(-n))`

Case 1:

Loan amount, P = 80% of 145000 = $ 116,000

Rate of interest, r = 4.75% = 0.0475

Time of loan, n = 30 years = 360 months

Substitute the values into formula.

`EMI=(116000\cdot (0.0475)/(12))/(1-(1+(0.0475)/(12))^(-360))`

`EMI=605.11`

Total payment for case 1: 605.11 x 360 = $217,839.60

Case 2:

Loan amount, P = 20% of 145000 = $ 29,000

Rate of interest, r = 4.75% = 0.07525

Time of loan, n = 30 years = 360 months

Substitute the values into formula.

`EMI=(29000\cdot (0.07525)/(12))/(1-(1+(0.07525)/(12))^(-360))`

`EMI=203.27`

Total payment for case 1: 203.27 x 360 = $73,177.20

Total amount of the mortgage = $217,839.60 + $73,177.20

= $291,016.80

Hence, The total amount of the mortgage is $291,016.80