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You can afford a $1000 per month mortgage payment. You've found a 30 year loan at 5.3% interest.

a) How big of a loan can you afford? (Round to the nearest cent, as needed.)
$
b) How much total money will you pay the loan company? (Round to the nearest cent, as needed.)
$
c) How much of that money is interest? (Round to the nearest cent, as needed.)

User Gmatht
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1 Answer

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Answer:

a) To find out how big of a loan you can afford, we can use the formula for the monthly payment of a mortgage:

M = P [ i(1 + i)^n ] / [ (1 + i)^n - 1 ]

where M is the monthly payment, P is the principal (the amount borrowed), i is the monthly interest rate (which is the annual interest rate divided by 12), and n is the number of monthly payments (which is the number of years times 12).

In this case, we know that M = $1,000, i = 0.053/12, and n = 30 x 12 = 360. We want to solve for P, the principal we can afford.

Substituting these values into the formula, we get:

$1,000 = P [ 0.004416(1 + 0.004416)^360 ] / [ (1 + 0.004416)^360 - 1 ]

Simplifying and solving for P, we get:

P = $183,928.72

Therefore, you can afford a loan of approximately $183,928.72.

b) The total money paid to the loan company will be the monthly payment multiplied by the number of payments over the life of the loan. In this case, we have:

Total money paid = $1,000 x 360 = $360,000

Therefore, the total amount of money paid to the loan company will be $360,000.

c) To find out how much of that money is interest, we can subtract the principal from the total amount paid. In this case, we have:

Interest paid = Total money paid - Principal = $360,000 - $183,928.72 = $176,071.28

Therefore, the amount of money paid in interest will be $176,071.28.

User Retslig
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