Question

Gabe and Eugenia bought a house! Their loan is for $117,000 , for 15 years at an annual interest rate of 4% . This results in a monthly payment of $865.43 . If only the minimum payment is made in month one, how much of the first payment goes toward reducing her balance? First, let's find the amount of interest she paid in month 1

Answer 1

Interest paid in one month is $390

The balance reduced is $475.43

Explanation:

The interest for month one is found by multiplying the balance of the loan by the monthly interest rate.

0.0412⋅117000=$390

If her monthly payment is $865.43 and $390 is interest, then

865.43−390=$475.43

.

Therefore, the balance of the loan is reduced by $475.43.

Answer 2

Principal element is $475.43

Interest payment is $390

Explanation:

The amount of interest paid in month one is 4%*$117,000*1/12=$390

The interest is calculated based on the annual interest rate of 4% apportioned to reflect one month interest by multiplying by 1/12

The principal element of monthly payment is the monthly payment minus interest.

principal paid in month one=$865.43-$390=$475.43

Ultimately,$475.43 goes toward reducing her loan balance while the $390 is interest on loan