Question

You are going to buy a home for $500,000. You will finance 80% of the $500,000 with a thirty year fixed rate mortgage. If the annual interest rate on the mortgage is 4%, The first monthly interest payment will be $1,333.33 True False

Answer 1

TRUE

The cuota will be of 1,906.66 from which 1,333.33 are payment of interest.

Step-by-step explanation:

We need to check if the mortgage cuota will be of 1,333.33

The formula for Cuota will be:

`PV / (1-(1+r)^(-time) )/(rate) = C\\`

PV 500,000 x80% = $400,000.00

time 30 years x 12 month = 360

rate 0.04 annual rate we divide by 12 to get the monthly rate. 0.03333

`500,000 / (1-(1+0.003333)^(-360) )/(0.003333) = C\\`

C 1,909.66

The first monthly payment will be of 1,909.66

But this payment has bot, amortization on the principal and interest.

The interest expense for this payment will be:

carrying value x monthly rate

In this case, is the first payment so we are talking about the full mortgage.

400,000 x 0.003333 = 1,333.33