Question

You can afford a $1300 per month mortgage payment. You've found a 30 year loan at 8% interest. a) How big of a loan can you afford? How much total money will you pay the loan company? How much of that money is interest?

Answer 1

Explanation:

To determine how big of a loan you can afford, you can use the formula for the monthly payment of a mortgage:

P = (L[c(1+c)^n])/([(1+c)^n]-1)

where P is the monthly payment, L is the loan amount, c is the monthly interest rate (which is the annual interest rate divided by 12), and n is the total number of monthly payments (which is the number of years multiplied by 12).

Plugging in the given values, we have:

1300 = (L0.08/12^(3012))/([(1+0.08/12)^(3012)]-1)

Solving for L, we get:

L = 217,758.61

So you can afford a loan of $217,758.61.

To determine the total amount of money you will pay the loan company, we can simply multiply the monthly payment by the total number of payments:

Total money paid = 1300 x (30 x 12) = $468,000

To determine how much of that money is interest, we can subtract the loan amount from the total money paid:

Interest paid = Total money paid - Loan amount = $468,000 - $217,758.61 = $250,241.39

So you will pay a total of $468,000 to the loan company, of which $250,241.39 is interest.