Question

Since they filed bankruptcy in the past, a couple ends up paying a 12% fixed rate for a 30 year mortgage. With a better credit rating, they could have gotten the loan at a rate of 8%. If their loan amount is $140,000, how much more per month will the couple be paying for their mortgage as a result of their bankruptcy?

a.
$137,532.67
b.
$412.79
c.
$1,440.06
d.
$260.37

Answer 1

It's B

Explanation:

Got it right on the quiz

Answer 2

option B is correct, i.e. $412.79

Explanation:

Loan tenure = 30 years = 30x12 = 360 months.

Loan amount = $140,000.

With a better credit rating, rate of interest = 8%/12 = 1/150 = 0.0067

With a better credit rating, Monthly payments would be:-

`Pmt = (PV*\;r)/([1-(1+r)^(-N)] ) \\\\Pmt = (140,000*\;0.0067)/([1-(1+0.0067)^(-360)] ) \\\\Pmt = \$1,027.27`

As a result of Bankruptcy, rate of interest = 12%/12 = 1/100 = 0.01

With a better credit rating, Monthly payments would be:-

`Pmt = (PV*\;r)/([1-(1+r)^(-N)] ) \\\\Pmt = (140,000*\;0.01)/([1-(1+0.01)^(-360)] ) \\\\Pmt = \$1,440.06`

The excess payment = $1440.06 - $1027.27 = $412.79

Hence, option B is correct, i.e. $412.79