Question

Devon purchased an investment property on October 1 last year. He financed 100% of the purchase with a $100,000 20-year loan at 6% APR. He can deduct the interest portion of his loan payments. His monthly loan payments are $716.43. How much interest will he pay throughout his 20-year loan?

A) $100,000
B) $143,257.20
C) $71,643.60
D) $50,000

Answer 1

Devon will pay a total interest of $71,943.20 over the life of his 20-year loan.

Step-by-step explanation:

The question asks us to calculate the total amount of interest that Devon will pay over the life of a 20-year loan at a 6% annual percentage rate (APR) where the monthly loan payments are $716.43. To find the total interest paid over the 20 years, we first determine the total amount paid and then subtract the principal amount of the loan from this total.

Devon's monthly payment is $716.43, and there are 12 months in a year. Over 20 years, he will make 12 * 20 = 240 payments. So, the total amount paid over the life of the loan is 240 * $716.43.

Total amount paid = 240 * $716.43 = $171,943.20

The principal amount of the loan was $100,000. Therefore, the total interest paid is the total amount paid minus the principal.

Total interest = Total amount paid - Principal amount

Total interest = $171,943.20 - $100,000

Total interest = $71,943.20

Therefore, the total interest Devon will pay over the 20-year loan period is $71,943.20.