Question

The banking and lending industry is one of the most profitable industries in the world for the lender, not the borrower. If you buy a home and take out a 30-year home mortgage loan for $500,000 at an APR of 4.5%, your monthly principal + interest payment will be $2,533, every month for 30 years, or until you sell your home.

a. Assuming you stay in your home for 30 years, how much total money will you have paid the bank in 30 years?
A. $912,480
B. $911,880
C. $912,960
D. $911,520
b. How much of the total money paid in part (a) was interest to the bank/lender—money you never see again?
A. $411,520
B. $411,880
C. $412,480
D. $412,960

Answer 1

The total amount paid for the 30-year mortgage loan at 4.5% APR is $912,480, and the portion of that amount which is interest comes to $412,480.

Step-by-step explanation:

The question involves calculating the total amount paid on a 30-year home mortgage loan and the amount of that total which constitutes interest. For a mortgage of $500,000 with a 4.5% APR, the monthly principal and interest payment is given as $2,533.

To find the total amount paid over 30 years, you multiply the monthly payment by the number of months in 30 years (30 years * 12 months/year = 360 months). So, $2,533 * 360 months = $912,480. Therefore, the total amount paid in 30 years would be $912,480, which makes option A correct for part (a).

For part (b), to find out how much of the total was interest, subtract the original loan amount from the total amount paid. $912,480 total paid - $500,000 original loan amount gives us $412,480 in interest. So, the correct answer for part (b) is option C.